USDJPY Retreats
USJPY drifted back during New York hours as the enthusiasm following the BoJ’s announcement of additional JPY10 tr of asset purchases quickly faded. Foreign investors who built up long positions heading into the BoJ meeting exited as USDJPY broke below 79 and 2y UST-JGB spread hardly moved. Lately, this has been a typical reaction to BoJ stimulus announcements, and we would caution against chasing the USDJPY move higher from here and stick to our 1m target of 78. The minutes from the BoE’s September meeting suggested that the door to further easing remains open, despite an increase in the short-term inflation outlook resulting from the rise in oil prices. The MPC’s decision on both rates and asset purchases was unanimous (9-0), though one member saw an immediate case for more QE, and others felt that further purchases will be required in the future. The minutes overall were quite dovish and our economists see a strong likelihood that the MPC could expand the QE once again, likely by GBP50bn, in November – that could weigh on GBP going forward. Housing data in the US continued to show positive signs of recovery with existing home sales growing by 7.8% m/m in August beating consensus of 2.0%. The housing starts rose 2.3% m/m in August though permits slipped by 1.0% m/m to 803k. Data from the Eurozone was limited on Wednesday. A Greek finance ministry official noted that Greece and the Troika reached an agreement on as much as EUR9.5 bn out of the EUR11.5 bn of budget cuts that Greece pledged to deliver. Ahead today, New Zealand’s Q2 GDP is due. Our economists forecast 0.5% q/q growth, slightly higher than market consensus of 0.4%. A number markedly higher should further strengthen NZD, putting downward pressure on AUDNZD. Also on tap today are the September PMI numbers in China and Germany and speeches from the heads of the BoJ, the ECB and the BoE.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank