Forex Flash: Impact of the BoJ decision on other currencies and central banks – JP Morgan
JP Morgan analysts observe the effect the Yen weakness is having on many currencies, as they rise sharply, and believe the policy response will vary by country but will not add up to global monetary conflict. “Amongst the major economies, no central bank is likely to intervene; most of them consider unilateral intervention feckless. We note Switzerland is the exception, but Japanese investors are not aiming for its low-yield assets, so BoJ policy isn’t relevant to the franc”, wrote analyst Jan Loeys, adding that several countries have shown a willingness to defer rate hikes (RBNZ, RBA, Riksbank) or cut rates (Norges Bank) to offset currency strength, since officials implicitly target overall monetary conditions. “Only the money market curves in New Zealand and Sweden price in rates hikes over the next year, so dovishness from those central banks should limit the upside on NZD and SEK and even leave them vulnerable to a short-term correction lower”, he continued, expecting intervention from Taiwan and Korea in EM countries. JP Morgan analysts continued their observation, pointing to more intervention in Brazil, Colombia, and Peru even before the BoJ announcement, and Chile has increased its verbal intervention as USD/CLP trades under 470, while Banxico hands-off approach should stand as well as the BoC.
The USD/CAD had moved higher all day ahead of the BoC interest rate decision and rate statement Wednesday, which was by far the marquee event of the afternoon thus far during European trading. Following the events, the cross has settled at 1.0266/70, rising +0.58% to session highs.