USDJPY Around Key Levels As Market Awaits Yellen

Japan’s Q3 preliminary GDP estimate showed that the economy grew by 0.5 percent, and although the figure came out ahead of market expectations, growth slowed from 0.9 percent in Q2 (down 1.9 percent year on year). Capital expenditure growth slowed to 0.2 percent in Q3, which continues to be a drag on growth. However, despite the initial estimate of a 0.5 percent drop in consumer spending, in the coming months we could see early signs of rising wages helping to boost retail sales and consumer spending before the scheduled sales tax hike in April.

The general response to the slowdown in Q3 GDP was more forward looking, and the market continues to wait on the government to approve another round of stimulus as the Bank of Japan (BoJ) keeps a close watch on economic conditions.

USDJPY focus

USDJPY moved higher shortly after the GDP data was released in early Asian trading, and the currency pair looks set to advance near 100. However, USDJPY faced some pressure around 99.70 at the time of writing. This is a key resistance zone for USDJPY, and the market will look to US initial claims and trade data on Thursday to guide direction ahead of the US Senate Banking Committee’s confirmation hearing for Janet Yellen later in the day.

Yellen steps forward
After a busy week of Federal Reserve speakers, Janet Yellen will finally get her moment to rise above and communicate that the Fed is still committed to its dual mandate and will remain accommodative in order to support a recovery.

Yellen’s prepared statement was released early, and the market interpreted it as being consistent with her usual dovish view on the economy. Yellen is focused on the labour market, and although there has been some progress, the US economy still has a long way to go in order to return to pre-crisis levels.

If confirmed, we could see Yellen managing a more gradual slowdown of the Federal Reserve’s pace of asset purchases. Stronger payrolls and a good Q3 GDP report, albeit due to inventory gains, are welcomed but the US economy will face further fiscal pressures during the first half of 2014.

Janet Yellen will probably spend most of her time defending the Fed’s easy money policies and educating the Senate about current economic conditions.

AUDUSD focus

Meanwhile, AUDUSD failed to sustain gains from North American trading on Wednesday after Australia’s consumer inflation expectations declined to 1.9 percent this month. Sellers were waiting around the 0.9400 level to limit the upside in AUDUSD while USD strengthened across the board in Asian trading.

What’s going on with the RBNZ?
There was some interesting price action in NZDUSD earlier this week after the Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler stated that interest rates will likely rise next year as inflation begins to pick up, but also cautioned that the rise in Kiwi will continue to be a risk factor. NZDUSD was initially lower on Wheeler’s comments, but quickly pared losses as better New Zealand economic data followed.

The pullback in NZDUSD after reaching the 0.8350 level could gain further momentum as traders take profit.

Wheeler’s comments were very telling, and many analysts are wondering if the RBNZ is in fact ready to raise rates early next year and worry about the resulting rise in Kiwi later, or will it talk down the exchange rate and find a more appropriate time to hike the official cash rate? Wheeler also mentioned that the overvalued housing market is still the main threat to the country’s financial system, so perhaps the results of mortgage restriction policies will offer some additional insight.