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Forex Flash: Global growth concerns trigger yen short squeeze - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the Yen has strengthened sharply since the end of the last week with USD/JPY declining from close to the 100 level on Friday to an intra-day low of 95.80 in late trading yesterday.

He sees that the combination of rising global growth concerns which prompted heavy selling of commodities, and apparent terrorist attacks have triggered a Yen short squeeze. Further, he notes that the pick up in investor risk sentiment in the near-term has supported traditional safe haven currencies such as the yen. It has caught the market somewhat by surprise following quickly on the heels of the BoJ’s shift to more aggressive easing which had intensified investors’ bearish outlook for the yen and bullish outlook for riskier assets.

He notes that the sharp sell off in the price of gold, which recorded its largest decline over the last two day in 30 years, has also likely spooked some investors who see it as a potential canary in the coal mine signal for financial stability ahead. He writes, “The price of gold in US dollar terms has now lost almost 30% of its value since the peak recorded in September 2011 bringing it close to the scale of the sell off experienced during the peak of the global financial crisis in 2008. We believe that the recent yen rebound is likely to prove only temporary given the aggressive monetary easing being undertaken by the BoJ.”

Additionally, he sees evidence of the ongoing loosening of liquidity conditions in Japan resulting from the BoJ’s actions was evident overnight by the rise in the current account balances held at the BoJ which increased to a record JPY61.4 trillion. The weaker than expected Chinese Q1 GDP report has also weighed heavily upon commodity prices supporting the view that the Chinese economy may be experiencing a more persistent structural slowdown in growth. He sees that those concerns continue to support our bearish profile for the Australian dollar over the next twelve months, although loosening global liquidity conditions and investor demand for relatively high yields on offer in Australia will likely ensure that corrections lower for the Australian dollar in the near-term will likely remain modest.

He writes, “We still anticipate that the RBA will ease monetary policy further perhaps as soon as June given record domestic currency strength which is tightening overall monetary conditions amidst still weakening labour market conditions. The RBA minutes from their last meeting maintained an easing bias although removed the phrase that “further reductions may be required from the policy intent summary” although that was prior to the release of the weak employment report for March.”

Forex Flash: Growing chance of a rate cut at next RBA meeting – TD Securities

This month’s RBA Board meeting minutes refreshed mixed news on offshore (US and China ok, risks from Europe) and domestic activity (retail and house prices up, challenges from strong AUD). “The OIS strip: is pricing a 25% chance of a -25bp rate cut at the next meeting (was 10% chance a month ago) reflecting the emergence of global growth concerns as both the US and China have stumbled in recent weeks”, wrote analyst Annette Beacher, adding that the bill strip is pricing more than one -25bp rate cut by the end of the year (-34bp) “having all but given up only two weeks ago when the more bullish analysts were garnering airplay for a RBA rate hike by year end”.
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Forex Flash: Recent Sovereign Bond price action in anticipation of Japanese developments - BBH

Brown Brothers Harriman analysts believe that a good part of recent price action in sovereign bonds and emerging markets has been done in anticipation of what japanese investors might do given that the BoJ is going to be buying 70% of new issuance through the end of the year.
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