Yen declines as BOJ lowers inflation forecast
Japanese yen declined after the Bank of Japan (BOJ) released its interest rates decision. As expected, the bank left interest rates unchanged and lowered the inflation target. This means that the bank will have a challenge moving from negative interest rates at a time when the global growth is expected to slump.
On Monday, the IMF released a report that lowered the global economic forecast. This was the second downgrade in less than three months. In addition, data from Japan showed some weakness. In December, the exports declined by minus 3.8%, which was worse than the expected decline of 1.9%. Imports rose by 1.9%, which was lower than the expected 3.7% gain while the deficit increased to 55 billion yen.
The New Zealand dollar jumped in overnight trading after positive inflation data from the country. In the fourth quarter, the CPI rose by 1.9%, which was a point better than the consensus estimate of 1.8%. On a QoQ basis, the CPI rose by 0.1%. The improving inflation rate in New Zealand increases the chance that the RBNZ will move to hike rates this year. In past meetings, the bank has guided for a rate hike in 2020.
The Asian markets were mixed today after the slump on Wall Street yesterday. In the United States, the Dow and the S&P lost 300 and 40 points respectively as investors continued to worry about global growth. This came after sharp declines in Europe where the DAX and FTSE lost 50 and 70 points respectively. In Asia, the China A50 and Japan’s Nikkei rose by 25 and 10 points respectively. Looking ahead, the markets could see some boost today because of positive earnings from the US. This is after IBM released positive results.
The EUR/USD pair was little moved in overnight trading. It is now trading at 1.1365, which is slightly higher than yesterday’s low of 1.1335. In the past ten days, the pair has dropped sharply from a high of 1.1570. On the hourly chart below, the price is along the short and medium-term EMAs, which is a sign of consolidation. Today, the pair will likely remain within this range as traders wait for the ECB interest rates decision tomorrow.
After a few days of declines, the USD/JPY pair rose today after the statement from the Bank of Japan. The pair is now trading at 109.66, which is along the previous weekly high. On the hourly chart, the price of the pair is slightly above the short and medium-term EMAs while the RSI has gone up close to the overbought level of 70. The Average Directional Movement Index has fallen from 58 to the current 38, which is an indication that the current rally is fading. The pair will likely remain along these levels or move up slightly to test the important resistance level of 110.
The NZD/USD pair rose today after positive inflation numbers. The pair reached a high of 0.67800, which is the highest level since Monday this week. It is also a major resistance level. The price is above the short and medium-term EMAs while the signal in the ADX indicator is rising. The momentum indicator too has risen to multi-week highs. There is a possibility that the rally on the pair will continue until it tests the 0.6800 level.