FX Roundup: Yen's movement dominates currencies market

The yen surged against major crosses on Wednesday for a third successive session on the preferred carry trade currency’s safe haven status, despite less than convincing economic data from Japan.

At 1700 BST, the dollar and euro were 0.62% and 0.22% lower versus the yen extending the previous session’s declines, and changing hands at JPY109.64 and JPY125.21 respectively.

Fresh data released as part of the Bank of Japan’s latest Tankan survey for March suggested the central bank’s adoption of negative interest rates in January was doing little to convince businesses that inflation was on its way.

The survey showed that companies expected prices to increase by 0.8% on average in the next year, lower than the previous 1% expectation. Over the next three years, expectations are for 1.1% price rises, down from 1.3% expectations.

While Bank of Japan governor Haruhiko Kuroda told the media he is 'monitoring the currency', Japanese policymakers have not confirmed any intervention thus far even though the USD/JPY cross breached the psychological JPY111 and JPY110 levels in successive trading sessions.

Kit Juckes, head of forex at Societe Generale, said, “On the first of February, just before the BOJ's bungled attempt to ease monetary policy, the Bloomberg consensus for USD/JPY in Q4 2016 was 125, with a range of 110-134. Today, the consensus is 118, the range 100-131. That is about as confused as the forex market ever gets!”

“The current spike in positioning represents both a huge capitulation of the bearish yen consensus, and disillusion with the stronger dollar theme as US rate expectations tumble and equity indices fail to benefit from easier policy globally.”

Meanwhile, commodity linked currencies got some respite, after the Reserve Bank of Australia made an overnight call on rates, keeping the country’s official cash rate steady at 2%. In the face of firmer oil prices, the Australian dollar gained 0.81% versus its US counterpart to change hands at US$0.7604.

The New Zealand dollar also rose 0.32% versus the greenback to change hands at $0.6826. The greenback shed 0.46% versus the Canadian dollar to change hands CAD$1.3077.

FXTM research analyst Lukman Otunuga said sentiment continues to remain bearish towards the US dollar despite the positive non-farm payroll data last week that suggested a recovery in the US economy.

“Market participants may direct their focus towards FOMC minutes due later in the US session which could provide further clarity on how and when the US Federal Reserve may decide to respect its pledge to raising rates twice this year. As of now, uncertainty envelopes the greenback which has provided further inspiration for bearish investors to weaken the US currency further.”

Elsewhere, a plethora of other commodity currencies headed higher in Latin America, with the dollar shedding 0.10%, 0.40%, 0.22% and 0.48% against the Mexican, Colombian and Chilean pesos and the Brazilian real.

Finally, the pound had another subdued session in absence of any major UK data, down 0.04% versus the dollar, exchanging at $1.4159.