Forex Flash: Yen vulnerable to short squeeze in near-term – BTMU
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that G10 FX Rates have remained relatively stable in the Asian session with AUD modestly weaker following the release of the weaker than expected Australian Retail Sales report for October.
He notes that the report showed that Retail Sales growth in October unwound the relatively strong 0.5% expansion recorded in September with the underlying trend still soft. An ANZ monthly survey recording the number of job ads was also released overnight and revealed another monthly decline in November for the eighth consecutive month with the level of job ads reaching its lowest level in almost three years. The report has served to reinforce expectations that the RBA will lower its key policy rate by 0.25% to 3.00% at tomorrows monetary policy meeting, with current market pricing viewing the decision as almost a done deal.
Hardman notes that the Australian economy is being hit by a negative terms of trade shock which is undermining incomes, resulting from sharp declines in the prices of Australia's key commodity exports with the price of iron ore and coal still trading at just over a third below levels from 2011. Slowing demand from China has been a key driver of the economic slowdown in Australia and there are building signs that the Chinese economy may have bottomed in Q3 with activity appearing to be rebounding modestly in Q4.
Hardman highlights that HSBC's China Manufacturing PMI survey increased to 50.5 in November rising above the 50-level for the first time in thirteen months. He believes that the emerging cyclical upturn for the Chinese economy has helped to support the Australian dollar in the near-term although it remains expansive relative to its term of trade which have shown little improvement so far from strengthening demand from China.
He writes, "We remain of the view that Australian dollar strength will gradually ease in the year ahead. However, persistent Australian dollar strength is creating greater scope for more aggressive rate cuts from the RBA. Elsewhere, the release of the latest IMM speculative positioning report confirmed our view that speculators have aggressively sold the yen on the back of comments from LDP Leader Abe over the last couple of weeks regarding intensifying political pressure on the BoJ to implement more aggressive monetary easing following the election on the 16th December."
Looking at the IMM report, he finishes by noting that the speculative short Yen positions as of the end of November had reached their highest level since prior to the economic crisis in early 2007 when the global yen carry trade was still yet to unwind. He notes that the scale of short term Yen positioning highlights the risk of a short squeeze should the BoJ disappoint in terms of shifting to more aggressive easing heading into 2013.
He notes that the report showed that Retail Sales growth in October unwound the relatively strong 0.5% expansion recorded in September with the underlying trend still soft. An ANZ monthly survey recording the number of job ads was also released overnight and revealed another monthly decline in November for the eighth consecutive month with the level of job ads reaching its lowest level in almost three years. The report has served to reinforce expectations that the RBA will lower its key policy rate by 0.25% to 3.00% at tomorrows monetary policy meeting, with current market pricing viewing the decision as almost a done deal.
Hardman notes that the Australian economy is being hit by a negative terms of trade shock which is undermining incomes, resulting from sharp declines in the prices of Australia's key commodity exports with the price of iron ore and coal still trading at just over a third below levels from 2011. Slowing demand from China has been a key driver of the economic slowdown in Australia and there are building signs that the Chinese economy may have bottomed in Q3 with activity appearing to be rebounding modestly in Q4.
Hardman highlights that HSBC's China Manufacturing PMI survey increased to 50.5 in November rising above the 50-level for the first time in thirteen months. He believes that the emerging cyclical upturn for the Chinese economy has helped to support the Australian dollar in the near-term although it remains expansive relative to its term of trade which have shown little improvement so far from strengthening demand from China.
He writes, "We remain of the view that Australian dollar strength will gradually ease in the year ahead. However, persistent Australian dollar strength is creating greater scope for more aggressive rate cuts from the RBA. Elsewhere, the release of the latest IMM speculative positioning report confirmed our view that speculators have aggressively sold the yen on the back of comments from LDP Leader Abe over the last couple of weeks regarding intensifying political pressure on the BoJ to implement more aggressive monetary easing following the election on the 16th December."
Looking at the IMM report, he finishes by noting that the speculative short Yen positions as of the end of November had reached their highest level since prior to the economic crisis in early 2007 when the global yen carry trade was still yet to unwind. He notes that the scale of short term Yen positioning highlights the risk of a short squeeze should the BoJ disappoint in terms of shifting to more aggressive easing heading into 2013.
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