Calmer Waters
The overnight rebound in equities amid the prospect of strong US earnings results and the better tone in peripheral bond markets have helped to underpin the euro, which has reclaimed some lost ground versus the US dollar and yen. USDJPY has also recovered its poise, thanks to growing confidence that the BoJ will indeed deliver further easing at its next Board meeting on April 27. Political pressure is more visible than ever (witness the DPJ’s request to meet four BoJ Board members for “an exchange of opinions”, just days after the PM called for an anti-deflation panel to be set up), press speculation is intensifying, and the Nikkei’s recent retreat will simply enhance the sense of urgency to act. We certainly see scope for BoJ action on April 27, but with various press reports already flagging a JPY5-10 trn boost for the APP, it may ultimately take JPY10 trn plus a removal of the maturity limit on JGB purchases and perhaps an extension of the APP to mid-2013 to really surprise markets. Our three-month target of 85 remains intact, with further BoJ easing superimposed upon what we expect to be a steady Fed policy stance. To this end, the barrage of commentary from Fed officials will be closely watched. In particular, any hint of a shift away from QE3 by Fed Vice-Chair Yellen, a wellknown dove, would underpin USDJPY. Also on today’s list of Fed speakers are Dudley, Lockhart, Plosser, Kocherlakota and Raskin. Another focal point will be the employment data in Australia. UBS expects employment to bounce by 15k m/m in March, but the Australian dollar should be particularly sensitive to the projected uptick in the unemployment rate to 5.3%, which would bolster the case for additional monetary easing – pending the release of the pivotal quarterly CPI inflation data for Q1 on April 24. The CPI data should open the door for the RBA to cut its cash rate by 25bp to 4.00% at its May 1 meeting (and again in June), keeping the AUDUSD on track to edge down towards parity in coming months.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank