The Bank of Japan’s governor, Haruhiko Kuroda, was out overnight showering the yen bonfire with additional petrol as he declared that there are no limits to the Bank of Japan’s methods for bringing the inflation level up to targeted 2%.
Looking at the magnitude of the original reaction off the back of the surprise easing last week, one has to imagine that this latest hint will not garner as large a reaction as the initial surge. So, standing far clear of said yen bonfire, I am wondering if a round number like 115.00 sees the market start to cool off.
This was a US mid-term election of protest as Republicans swept to an even stronger-than-expected majority in the Senate and strengthened their majority control of the House of Representatives.
Not sure whether there is any real market takeaway from this in the short term, as it merely guarantees what already appeared to be two more years of a lame duck presidency. My take as an American: the Democrats will be desperate to craft a new message and the Republicans will risk the utterly mistaken impression that voters are in favour of them rather than against Obama.
NOK reaches new lows not seen in years in a trade-weighted sense as Saudi Arabia’s price-cutting is slamming oil markets for huge losses and the krone and CAD are very much the oil currencies of note. However, Bank of Canada governor Stephen Poloz's recent, rather dour, assessment of Canada’s economy is also a driver there. USDCAD touched new highs well above 1.1400 today.
New Zealand’s unemployment rate dropped 0.2% to 5.4% in Q3 to a new low and took NZD for a ride higher versus most of its peers, with AUDNZD well back into the range and NZDUSD spiking higher before fading again. I still prefer to
concentrate lower in NZDUSD, though this bout of range trading requires fresh lows to reinvigorate the bearish view.
Australian employment data is due out tonight, which often has a strong bearing on the Aussie dollar. Photo: Thinkstock.com
Looking ahead
The UK Services PMI is up shortly and a relatively high reading is expected – look out on the downside in GBPUSD if the reading is particularly ugly, as the pair drooped on the USDJPY move overnight.
There is so much going on at the moment – I doubt there is much room to react to Eurozone PMI’s today when we have a European Central Bank president Mario Draghi press conference up tomorrow, two days after it emerges that the ECB board members are not happy with his leadership style.
We’ll have to be on the lookout for a change of tone from Draghi, as the market has fairly aggressively priced in sizable balance sheet expansion from the ECB, and any sign that Draghi, who is clearly the spearhead of the ECB’s aggressive tone, is pulling back rhetorically would be highly EUR positive. And tomorrow, rhetoric is about all we will get as no policy adjustments are expected. The stakes loom even larger tomorrow due to the aggressive BoJ move and the explosion higher in EURJPY. Will Draghi don his full suit of currency war armor tomorrow?
Watch for October US ADP employment change number and the important US ISM non-manufacturing survey up later – the September number saw a small dip from August’s nine-year high reading.
The Australian employment report is up tonight, often one that AUD reacts quite strongly to. It's especially interesting this time around as AUDUSD hovers near that major support in the 0.8640/50 area. A break there could set in motion further declines toward 0.8100 and even 0.8000 and beyond. The services survey last night, not particularly closely followed, but presumably reasonably comprehensive, notched an ugly reading below 44.0 overnight.
Chart: AUDUSD
Continuing to eye the 0.8640/50 area range- and multi-year low as a catalyst for potential large further declines. To see this, we’ll likely need to see supportive US data, including Friday’s non-farm payrolls release, and less supportive data out of Australia tonight. 
Source: Saxo Bank
Those bank of Japan minutes overnight are for the October 6-7 meeting. It’s the next minutes that will be more interesting.
Economic Data Highlights
- New Zealand Q3 Unemployment Rate out at 5.4% vs. 5.5% expected and 5.6% in Q2
- New Zealand Q3 Private Wages Inc. Overtime rose +0.5% QoQ as expected and vs. +0.6% in Q2
- Australia Oct. AiG Performance of Services indicator out at 43.6 vs. 45.4 in Sep.
- Uk Oct. BRC Shop Price Index out at -1.9% YoY vs. -1.7% expected and -1.8% YoY in Sep.
- Japan Oct. Markit Services PMI out at 48.7 vs. 52.5 in Sep.
- China Oct. HSBC Chins Services PMI out at 52.9 vs. 53.5 in Sep.
- Sweden Oct. PMI Services out at 57.7 vs. 55.6 in Sep.
- Switzerland Oct. CPI out at 0.0% MoM and 0.0% YoY vs. -0.1%/-0.1% expected, respectively and vs. -0.1% YoY in Sep.
- Sweden Sep. Industrial Production out at -1.1% MoM and -4.3% YoY vs. +0.3%/-2.0% expected, respectively and vs. -2.4% YoY in Aug.
Upcoming Economic Calendar Highlights (all times GMT)
- UK Oct. Markit/CIPS UK Services PMI (0930)
- Eurozone Sep. Retail Sales (1000)
- US Oct. ADP Employment Change (1315)
- US Fed’s Kocherlakota to Speak (1415)
- US Fed’s Lacker to Speak (1430)
- US Oct. Final Markit Services PMI (1445)
- US Oct. ISM Non-manufacturing Survey (1500)
- New Zealand Oct. QV House Prices (2300)
- Japan BoJ meeting minutes of Oct 6-7 meeting (2350)
- Australia Oct. Employment Change and Unemployment Rate (0030)
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