The hearts of those holding Philippine pesos were broken on Tuesday after the currency slipped to its weakest level against the dollar in more than eleven years. The peso weakened by 33 centavos to 51.85 per dollar.
The peso wasn’t alone in falling against the dollar; most Asia-Pac currencies did the same as the greenback shrugged off more Republican disharmony – seen as a potential obstacle to US tax reforms – late in the New York session. The US Dollar Index ended Tuesday’s session with marginal gains, having climbed 0.08 points to 93.94. The index had been down 0.18 points at one stage in the day.
Investors are perhaps also cautious ahead of important economic data this week. Wednesday sees an interest rate decision by the Bank of Canada and Thursday sees one from the ECB. The latter meeting is expected to induce significant volatility in euro exchange rates, including EUR/PHP (61.08), because decision-makers at this meeting will discuss the end of European quantitative easing for the first time since its introduction. Adding to a sense of unease is Friday’s important US GDP data.
In the face of economic uncertainty, investors typically offload riskier currencies, which means all of Asia-Pac FX, with the exception of the Japanese yen.
In Australia, the ABS said on Wednesday morning that consumer prices grew by 0.6% in the third quarter, which takes annualized growth to 1.8%, below the market expectation for 2.0% and the prior reading of 1.9%. More importantly, inflation continues to run below the RBA’s target of 2-3%. As a result, the Australian dollar fell to a three-month low against USD of 0.7728.
The New Zealand dollar continues to be sold across the board as investors reel from the decision by the New Zealand First party to support a Labour government. On Tuesday, the kiwi was buying less than 0.69 USD (0.6886) and had fallen to long-term lows against the British pound (0.5237), euro (0.5849) and Australian dollar (0.8854). New Zealand’s latest trade data will be released on Thursday, scheduled for 10:45am local time (GMT 9:45pm, Wednesday night).
The main market for the Indonesian rupiah has been sparked into life. USD/IDR had spent much of the January-August period contained within a 1.5% range between 13,250 and 13,450, but following a sharp fall in early September to 13,118, the rate has climbed 3.5% and now threatens 13,600 (last seen at 13,572).
The Japanese yen also weakened against the dollar on Tuesday despite some risk aversion. USD/JPY continues to battle with the 114 handle. The level was the day’s high, give or take, on both Monday and Tuesday, and is once again the extreme in early trading on Wednesday.
The yen has weakened following the victory of Shinzo Abe’s Liberal Democratic Party in Sunday’s national election. A continuation of “Abenomics” will likely preserve extremely loose monetary policy in Japan, and that means that barring further threats from North Korea, USD/JPY is likely to succumb to the magnetic pull of 115 within the next week or two.
A breach of 115.50 in USD/JPY will see a test of 119, according to French bank Societe Generale. At 115.50, “things could go two ways…[but] we’re bullish, looking for a push higher in USD/JPY, as well as EUR/JPY and CAD/JPY,” the bank’s analyst said.
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