Please attribute the following commentary to Stephen Innes, senior trader at OANDA
Market Awaits Next Key Driver
Asian equity markets were in catch-up mode overnight, taking cues from gains in the futures markets on Friday night following the US employment report.
In commodity markets, the focus was on oil. The WTI rose some 5% as a meeting between energy ministers from Russia and Saudi Arabia raised hopes that a freeze production announcement would occur at next month’s OPEC meeting in Algiers. However, when the Saudi oil minister stated there is no explicit agreement and further commented that there is nothing decided on output, with nothing forthcoming, in typical buy the rumour, sell the fact fashion, oil prices plummeted lower.
The Yen continues to be the primary driver of USD sentiment. While glued near 103.40 during most of the Europe session, as well as through the holiday-thinned US markets, there has been some absorbing price action.
Besides the ongoing abstractions and debate surrounding the vagaries of the US Non-Farm Payroll report, Governor Kuroda’s speech at the Kisaragi-kai Meeting in Tokyo, still resonates.
While delivering his customary “whatever it takes” stance regarding the BOJ stimulus, the Central Bank is apparently weighing earlier FSA warnings by referencing the negative impact that NIRP has on financial institutions.
Kuroda’s guarded comments sent the USDJPY pair lower as the market awaits the next US Dollar driver.
The current move in USDJPY is running counter to the technical setup, which favors a move through 104. Also, Bond Yield's and Bond flows are currently not supportive of a stronger Yen outlook.
Regardless of settings, there are a lot of moving parts in this discussion and the yury remains out on the next significant USDJPY move.
Traders are stuck in no man's land with the markets held in neutral. While expectations for a September US interest rate lift-off are diminishing, it is likely a reprieve as the Yuan is trading with a long-term bias towards a gradual rate of depreciation. There is still a substantial likelihood that the Federal Reserve Board will raise interest rates in 2016, which should weigh on Yuan near-term sentiment. Traders are also less inclined to rock the RMB boat ahead of the October Yuan SDR inclusion. The market may stay neutral up until the BOJ meetings Sept 20-21, if not through to the October SDR composition.
I suspect the markets were fundamentally flat going into NFP and have been slow to re-engage. Long EM Asia positions are primarily driven by the uncertainty regarding US interest rates. Even the movements in oil prices overnight failed to get much of a rise from Ringgit dealers.
Given the range trade mentality, expect exporter offers to come in 4.08 with USD support at 4:05.
The Australian Dollar continues to perform well as Aussie dollar bulls have some breathing room now that the odds of a September US interest rate lift off have considerably decreased.
The risk on appeal from a "Goldilocks" type NFP number has underpinned the AUD, as it has with most commodity-related currencies.
We have the RBA statement later today. While the markets are expecting no change in the Bank's policy rate, the Australian dollar remains supported, approaching the key .7600 level in the pre-announcement trade. Traders are expecting a hawkish, rather than a dovish, course from the accompanying statement, especially in the wake of the recent run of buoyant domestic economic data.