Forex Flash: Rising China growth optimism reinforces yen selling - BTMU
Forex pairs in this Article »
AUD/JPY
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the Yen has weakened further in the Asian session, most notably against the Australian dollar, with AUDJPY rising to its highest level since early September 2008 prior to Lehman Brother's, highlighting the extent of the ongoing improvement in global investor risk sentiment.
He notes that it has also coincided with the implied US equity volatility (VIX) index falling to its lowest level since before the financial crisis from mid 2007. He feels that investors are increasingly confident that improving global growth and loose global liquidity will ensure financial market stability ahead, encouraging building demand for carry trades.
On a nominal trade weighted basis, the Australian Dollar has reached new record highs, pushing it to even further into overvalued territory. Hardman feels that the lack of high yielding alternatives is ensuring that demand for AUD still remains robust despite the RBA cutting rates, totalling 425 basis points since early September 2008.
He writes, "The fresh catalyst for the ongoing improvement in investor risk sentiment overnight was the release of the China trade report for December. The report revealed both stronger than expected export and import growth which accelerated to annual rates of 14.1% and 6.0% respectively in December. For 2012 as a whole China's exports grew by 8.3%Y/Y and imports by 5.3%Y/Y resulting in an annual trade surplus of USD233 billion compared to USD158 billion in 2011.
Hardman notes that the economic slowdown in Europe has resulted in the US replacing the EU as China's biggest export destination in 2012. The much stronger than expected export growth in December highlights that the Chinese economy was likely rebounding more strongly than expected heading into 2013. It has also been speculated that Chinese inventory restocking has driven a strong rebound in iron ore prices through December to date leaving prices only around 17.0% below the peak from 2011 compared to a trough of around 55.0% in September 2012.
He feels that higher prices, if sustained will help reduce the negative terms of trade shock to Australia's economy, reducing the risk of a sharper correction lower for the Australian dollar ahead. He finishes by writing, "The yen also remain on a weakening bias with investors wary over the Japanese government's attempts to weaken to it. Bloomberg have just reported that the government is considering new measures using the special account in the foreign exchange fund related to revenues generated from past intervention to help stabilize the
currency market. No further details have been released as yet."
He notes that it has also coincided with the implied US equity volatility (VIX) index falling to its lowest level since before the financial crisis from mid 2007. He feels that investors are increasingly confident that improving global growth and loose global liquidity will ensure financial market stability ahead, encouraging building demand for carry trades.
On a nominal trade weighted basis, the Australian Dollar has reached new record highs, pushing it to even further into overvalued territory. Hardman feels that the lack of high yielding alternatives is ensuring that demand for AUD still remains robust despite the RBA cutting rates, totalling 425 basis points since early September 2008.
He writes, "The fresh catalyst for the ongoing improvement in investor risk sentiment overnight was the release of the China trade report for December. The report revealed both stronger than expected export and import growth which accelerated to annual rates of 14.1% and 6.0% respectively in December. For 2012 as a whole China's exports grew by 8.3%Y/Y and imports by 5.3%Y/Y resulting in an annual trade surplus of USD233 billion compared to USD158 billion in 2011.
Hardman notes that the economic slowdown in Europe has resulted in the US replacing the EU as China's biggest export destination in 2012. The much stronger than expected export growth in December highlights that the Chinese economy was likely rebounding more strongly than expected heading into 2013. It has also been speculated that Chinese inventory restocking has driven a strong rebound in iron ore prices through December to date leaving prices only around 17.0% below the peak from 2011 compared to a trough of around 55.0% in September 2012.
He feels that higher prices, if sustained will help reduce the negative terms of trade shock to Australia's economy, reducing the risk of a sharper correction lower for the Australian dollar ahead. He finishes by writing, "The yen also remain on a weakening bias with investors wary over the Japanese government's attempts to weaken to it. Bloomberg have just reported that the government is considering new measures using the special account in the foreign exchange fund related to revenues generated from past intervention to help stabilize the
currency market. No further details have been released as yet."
Free Annual Reports
