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Yen struggles before Bank of Japan meeting; dollar hostage to taper talk

November 18, 2013 8:41am
SYDNEY - Major currencies got off to a subdued start in Asia on Monday after an uneventful weekend, with the yen pinned near a four-year trough on the euro as investors preferred to use the low yielding currency to fund riskier trades.
 
Data on Friday showed currency speculators turned even more negative on the yen in the week ended Nov. 12, having held net short positions in the Japanese currency since late October.
 
"Short positioning has become more extreme during four of the last five weeks, and is now just marginally above the seven-year low," analysts at JPMorgan wrote in a note to clients.
 
The euro bought 135.26 yen not far from the Oct 22 peak of 135.52, a high not seen since November 2009. The dollar traded at 100.22 yen, near a two-month high of 100.43 set on Friday.
 
Compared with the European Central Bank and Federal Reserve, the Bank of Japan is the most aggressive in providing monetary stimulus as it works to pull the world's third-biggest economy from two decades of stagnation. The BOJ holds its policy meeting later this week and is expected to maintain its ultra-loose policy.
 
"Our baseline remains that it will be forced to ease further in April 2014, as we expect inflation to undershoot its ambitious forecast by then," Barclays Capital analysts said.
 
Markets will also be keeping an eye on minutes of the Fed's Oct 29-30 meeting due Wednesday and a string of speeches from Fed officials including Chairman Ben Bernanke, who is due to speak on "Communication and Monetary Policy" on Tuesday.
 
Dovish comments last week from Fed Chairman-nominee Janet Yellen have gone some way to assure markets there will be no imminent decision to scale back the Fed's massive bond-buying program.
 
Still, investors are keeping a close eye on upcoming US data to gauge the timing of any tapering. Key this week include retail sales on Wednesday.
 
Uncertainty about when the Fed will move has unsettled the dollar, allowing the euro to rally nearly 1 percent last week and recoup some of the steep losses suffered in the previous two weeks. It last traded at $1.3492, near late New York levels on Friday.
 
That, in turn, brought the dollar index back down to 80.817, near the bottom-end of last week's 81.732 and 81.464 range.
 
In Australia, minutes of the Reserve Bank of Australia's (RBA) Nov 5 policy meeting are due on Tuesday, when the central bank left interest rates steady at a record low 2.5 percent as expected.
 
While the RBA has left the door open to more interest rate cuts, it is reluctant to ease further given there is already plenty of monetary stimulus in the economy.
 
Instead it is hoping for the currency to weaken in order to provide more support to the export-side of the economy and spur a broader recovery.
 
The Australian dollar last stood at $0.9375, having fallen nearly 4 percent since Oct 23, when it scaled a peak of $0.9758.Reuters



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