The RBA and BoJ stand pat

2 November, 2016

The Japanese currency saw a muted response to the BOJ decision to leave the rates unchanged, as it came in line with the analysts’ expectations. The policy rate remained at -0.1%, where it has been since January 2016. During the previous meeting, the Central Bank indicated that the policy was overhauled with the focus turning to controlling the short-term and long-term bond yields with less attention paid to inflation. A report on the economic outlook showed that the inflation target of 2% was delayed once again. According to the BoJ, the core CPI will reach its target in 2019. Basically, this shows that the current BoJ governor Kuroda, whose term will end in spring, is going to leave all the main tasks to his successor. When Kuroda took his office then the Core CPI showed growth to 1.6% at the start of 2016 but failed to maintain the rally dipping to 0.2%. The USD/JPY trades are nearly unchanged at the 104.85 level.

The Chinese Purchasing Manager index reports showed growth in both manufacturing and non-manufacturing sectors. This is easing the concerns over the slowdown that is related to revamping the economy with the sharp cut down of the manufacturing facilities. The manufacturing PMI rose to 51.2 beating the expectations of 50.3 points while the non-manufacturing PMI was at 54.0 points, which is 0.3 points higher than the previous month. The bond yields renewed their growth pushing the investors to take flight from the low-yield assets as the risk concerns fade.

The US 10YR treasuries profits rose by 0.61% to 1.845 while the German bond yields gained 3.01% to 0.172 points, being the highest in six months. The Japanese 30YR bond yield was unchanged at 0.508

The Australian Dollar surged on the RBA decision to hold off a rate change, leaving at 1.50% after the 25 b.p. cut in August. The Central Bank’s move showed that the current inflation pace is adequate and the anticipation of recession risks have been lowered. The AUD/USD gained 0.87% to 0.7678 with heavy bullish bias persisting on the pair.

The GBP/USD trades nearly flat as the Manufacturing PMI, which was slightly lower than the forecasts, failed to provide any impact on the currency. The BoE head Mark Carney announced that he will stay in office till the formal Brexit process is finished.

The Crude prices fell as the output freeze agreement vanished due to the growing discord between the OPEC members and the uncertainty about Russia’s participation in the project.

The US Dollar index retreated from its peak ahead of the US elections with the biggest drop seen against the Euro, EUR/USD +0.32% at 1.1015. The Gold keeps rallying as risk concerns in the run-up to US presidential event pushes safe heavens up, XAU/USD +1.17% at 1,288.05.

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