Dollar breaks above 107 yen; Kiwi pressured by RBNZ outlook

Improved risk sentiment helped the dollar higher against the yen, while stimulus talk continued to pressure the Japanese currency on Thursday.

The dollar broke above 107 yen for the first time in six weeks as Japan’s government said today it is planning a fiscal stimulus package worth 20 trillion yen. The figure is double the initial sum of 10 trillion yen that was previously mentioned.

Most analysts are now with the view that the Bank of Japan will accompany the fiscal measures with fresh monetary stimulus when it meets next week. Expectations of looser monetary policy sent the yen lower against most major currencies, with the euro and the pound climbing to 118.20 and 142.05 yen respectively in today’s Asian session.

The New Zealand dollar was also weaker on Thursday as the Reserve Bank of New Zealand reinforced expectations that it will likely cut interest rates in the near term. In an unscheduled economic update, the RBNZ said that a “decline in the exchange rate is needed” to bring inflation back within the central bank’s target band of 1-3%.

The statement sent the kiwi plummeting to below the 0.70 level against the US dollar for the first time in over three weeks. It was last trading at 0.6975 in late Asian session.

The Australian dollar was firmer though as higher commodity prices supported the currency. The aussie briefly climbed above 0.75 against the greenback but was unable to hold onto the level and was last trading at around 0.7490.

Crude oil prices staged an impressive recovery yesterday, helping broader commodity prices higher after US crude stocks fell more-than-expected according to the latest EIA inventory data. WTI oil futures rebounded back above $45 a barrel and were testing $46 in late Asian session.

In European currencies, the euro and the pound started the day positive on the back of improved risk appetite. The euro cautiously climbed back above 1.10 dollars ahead of the ECB’s policy announcement later today where investors will be looking for the central bank’s response to the Brexit fallout.

The pound meanwhile extended yesterday’s gains to rise to 1.3250 dollars in late Asian trading today. Sterling was boosted yesterday from a Bank of England survey that showed only a limited impact on business sentiment after the Brexit vote. The British currency was further supported today from comments by BoE MPC member Kristin Forbes who said that the Bank should wait for hard evidence before cutting interest rates.

Looking ahead to the rest of the day, UK retail sales and government borrowing figures will be the main data in the European session before the ECB’s policy announcement at 11:45 GMT. This will be followed by Mario Draghi’s press conference at 12:30 GMT. In the US session, weekly jobless claims and existing home sales out of the US will be watched.