Yen steady, markets on intervention alert; Aussie up before RBA decision

2023-07-04 10:20

By Ankur Banerjee SINGAPORE The yen nudged up on Tuesday but remained vulnerable to more weakness, hovering near

Yen steady, markets on intervention alert; Aussie up before RBA decision

By Ankur Banerjee

SINGAPORE The yen nudged up on Tuesday but remained vulnerable to more weakness, hovering near the key 145 per dollar level as markets were on alert for signs of intervention, while the Australian dollar moved up ahead of a central bank policy decision.

The yen was up 0.17% at 144.42 per dollar in early Asian hours, but remained close to last week's eight month low of 145.07 per dollar that prompted Finance Minister Shunichi Suzuki to warn against excessive yen selling.

Earlier on Tuesday, Japan's top financial diplomat Masato Kanda said that officials were in close contact with U.S. Treasury Secretary Janet Yellen and other overseas authorities almost everyday on currencies and broader financial markets.

"This is sending signals that a coordinated intervention may be coming as yen continues to hover above 144 per dollar," said Charu Chanana, market strategist at Saxo Markets.

"A coordinated intervention usually has a longer lasting impact on the yen than a unilateral intervention would have."

Japan bought yen in September, its first foray in the market to boost its currency since 1998, as the Bank of Japan's pledge to retain ultra-loose policy as long as required drove the yen as low as 145 per dollar. It intervened again in October after the yen plunged to a 32-year low of 151.94.

Against a basket of currencies, the dollar eased 0.039% to 102.910 after data overnight showed U.S. manufacturing slumped further in June, reaching levels last seen when the nation was reeling from the initial wave of the COVID-19 pandemic.

"We expect the U.S. economy to face a recession starting in Q3 23," Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia, adding that it was likely to be a quiet day for the currency market with no major data releases or central bank speech scheduled. U.S. markets are closed for the July 4 Independence Day holiday.

Investor focus this week will be on nonfarm payrolls data along with jobs report for more clues about the broader labour market in the United States. Minutes of the U.S. Federal Reserve's June meeting are also due to be released on Wednesday.

Markets are pricing in a near 87% chance of a 25 basis point hike in the next Federal Reserve meeting at the end of the month, the CME FedWatch tool showed.

RBA WATCH

The focus in Asian hours will be on the policy decision from the Reserve Bank of Australia (RBA).

Markets are leaning towards a pause, with swaps pricing a 63% chance of a hold in rates after data last week showed consumer inflation slowed to a 13-month low in May. But economists were split on the outcome, with 16 out of 31 polled by Reuters expecting a hike and the rest forecasting the bank to stand pat. [AU/INT]

Since a surprise pause in April and subsequent hikes in May and June, economists have been mostly divided in recent months over the RBA's next move.

CBA's Clifton said the slight easing in inflation in May should please the RBA but with a tight labour market as well as still high price pressures, a 25 bps hike would not be a surprise.

"We estimate that a hike would push up Aussie modestly by 0.8% so long as the post‑meeting statement was not dovish. No change or a dovish hike could pull AUD modestly lower."

The Australian dollar was at $0.668, up 0.16% against the U.S. dollar, while the New Zealand dollar was also up 0.16% at $0.616.

The euro was up 0.02% to $1.0913, while sterling was last at $1.2699, up 0.06% on the day.

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Currency bid prices at 0209 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0908 $1.0915 -0.04% +1.82% +1.0915 +1.0908

Dollar/Yen 144.6100 144.6900 -0.09% +10.15% +144.6900 +144.4500

Euro/Yen 157.76 157.87 -0.07% +12.44% +157.9100 +157.6000

Dollar/Swiss 0.8965 0.8965 +0.02% -3.03% +0.8967 +0.8958

Sterling/Dollar 1.2691 1.2691 +0.02% +4.95% +1.2701 +1.2688