FX Consolidates
Headlines during the Asia session brought no fresh perspective on the two themes currently driving FX markets. First, USDJPY remains well supported with last week’s disappointing Bank of Japan policy decision now a distant memory. Investors are already looking ahead to the nomination of Governor Shirakawa’s successor which press reports suggest could happen around Feb. 15th. The week ahead could see yen watchers switch their attention to the US-centric drivers of USDJPY for a change. The calendar is heavy with US economic releases, beginning with Durable Goods Orders later today and ending with the January nonfarm payrolls report on Friday. Our US economics are mostly on the optimistic side of consensus, and with US yields already drifting higher, USDJPY could soon start to draw support from this more traditional quarter. We do not expect Wednesday’s FOMC decision to produce a material shift in the Fed’s stance however – although with four newcomers now wielding FOMC votes, a hawkish dissent or two cannot be ruled out. Second, the euro continues to benefit from the gradual return of safe-havenseeking flows which had abandoned the single currency last year in search of a safer harbour. The Australian and Canadian dollars appear to suffering the most from this reversal of fortune, although CAD has its own internal issues to contend with now, after the Bank of Canada watered down its hawkish bias last week on the back of a more benign inflation outlook.
Click here to read the full report: UBS Morning Adviser
UBS Investment Bank