The market's tone has been one of risk-off, as political fallout in both Europe and the United States is weighing on investor resolve, imposing an unpalatable risk on investor sentiment. Investors are now seeking shelter in safe havens to weather the mounting risk.
The focus today will be on the RBA later in the session. The RBA are expected to maintain a very neutral stance, with little reason to expect any deviation from this steadfast approach. However, given a lack of communication from the central bank lately, the AUD may be susceptible to a shift in language. A shift in tone could come from either global trade concerns or the domestic front, as risk is building about inflation, which continues to run below RBA forecasts, or weakness in the latest employment rates, which could lead to a dovish tone from the RBA. That said, while the market is in the thick of a run in USD weakness, it is unlikely the RBA will alter their course on interest rates.
Yesterday’s mushy retail sales print hung over the Aussie like a dark cloud overnight, and the slide in oil prices on the back of increases in the US rig count did not help the commodity block’s cause.
Pick your poison for the latest dollar swoon. Whether it is a miss on US wage growth, Trump induced risk aversion, or softening of US yields, the so-called dollar correction is beginning to look like a full blown rout, as the dollar bulls concede yardage by the hour. Indeed, stops below ¥112.00 triggered the deeper move to ¥111.50.
If the near term line in the sand was indeed 112, the risk should be skewed for a deeper correction. However, I think traders are having a difficult time committing to longer term views in these politically charged environments, and are exhibiting reluctance to chase either side of the dollar coin. However, if the market cannot regain the ¥112.00 soon, dollar bears will pounce on the opportunity to drive the Greenback lower.
Moreover, for good measure, Reuters reported that Japan's former currency king Eisuke Sakakibara has said the USD could fall below 100 JPY by year-end, as Trump's perceived support for a weak dollar helps slow the pace of rate hikes by the Fed.
Political uncertainty is mounting as election storm clouds gather over the continent. From growing waves of populism to Penelope–gate, the threat of global risk aversion is starting to build.
On the French election front, Parisian’s response to Francois Fillion comments that he has nothing to hide concerning Penelope–gate will be carefully monitored. Before his recent address, 61% of French voters and 31% supporters of the Right and the Centre think Fillon should have pulled out of the elections.
Emerging Market APAC
Investors continue to buy EM Asia on the back of broader based USD weakness. Over short term, this could increase as the USD is precariously perched and poised to move lower with all eyes focused on USDJPY after the break of ¥112.0.