Week in FX Asia – Asian Currencies Gain Versus USD

• Bank of Japan holds rate and stimulus steady
• Reserve Bank of New Zealand hikes rates to 3.25%
• China stimulus measures appear to be paying off

The USD was on the back foot in Asia this week. Geopolitical risk continues to grow as the turmoil in Iraq has increased and the Russia-Ukraine gas negotiations continue to show two sides who are far apart. Gold and Oil have risen but the USD has not benefitted versus Asian crosses before Friday’s US Data was released.

The Bank of Japan continues to hold a confident assessment of the economy. The monetary policy statement out of Japan signalled no change to the interest rate or the size of the stimulus package. This was expected by the market given the impressive first quarter results. It is also known that those numbers were boosted by a higher sales tax introduced in April which prompted consumers to preempt it by making purchases before it came into effect.

The USD/JPY was range bound around 102 as most US economic releases were negative as the BoJ was again confident on having the necessary measures in place to stimulate the growth of the economy. Manufacturing numbers in Japan continue to struggle and there is little hope that the tax corporate cuts PM Shinzo Abe is pushing will have a positive effect in Q2.

The Reserve Bank of New Zealand raised its interest rate to 3.25% as expected. The statement from the central bank was more hawkish than the previous which could signal a fourth hike in the next meeting. Housing risks are one of the reasons cited for the hike as the RBNZ wants to cool down a potential bubble.

China indicators were mixed this week. Retail sales and industrial output were positive reassuring Chinese growth expectations. Sales rose 12.5% beating expectations as well. Industrial output grew at a strong 8.8 percent and fixed assets rose 17.2 January to date. Much of the credit was given to the stimulus measures pushed by the Chinese government even as a new round of stimulus measures aimed at much needed infrastructure projects.

Next Week For Asia:

Inflation takes the center stage in the markets next week. UK, US and Canada inflation numbers will be published. With the focus on rate differentials and the lower for longer expectations in Europe and Japan the breakaway Central Banks of the UK and the Fed will lead the rate hike movement.

The Bank of Japan will have a chance to reaffirm their positive reading of the Japanese economy with speeches from Governor Kuroda and the release of the policy minutes.

• AUD RBA Assistant Governor Speech
• JPY BOJ Economic Survey
• CNY China FDI
• JPY BOJ Policy Meeting Minutes
• NZD New Zealand GDP
• JPY BOJ Kuroda Speech