Let it sink in – Markets hope data will reflect tightening

USD/JPY rallies as BoJ may stay dovish

The Japanese yen weakens as the upcoming BoJ team pledges to continue monetary easing. New governor nominee Kazuo Ueda has so far brushed aside any talk of an immediate change to the policy, tempering expectations of a disruptive stance from his predecessor. There could still be an upside surprise at the meeting, in the form of one last tweak of the yield cap by the incumbent Haruhiko Kuroda, which would be supportive to the currency. But if the BOJ event goes uneventful, volatility will likely be directed by the US jobs report later on. The pair is testing December’s high of 138.00 with 132.80 as the closest support.

AUD/USD steadies as RBA to hike again

The Australian dollar consolidates ahead of a potential rate increase by the RBA. The tightening is sinking in as Australia's economy grew at its slowest pace in a year in Q4. However, the struggle against inflation is far from over with rising price pressures and labour costs. After the RBA abandoned its pause option and signalled more hikes to deliver, markets are betting that there is room for a whole percentage point to 4.35%, from the current decade-high of 3.35%. An aggressive reassertion out of the upcoming policy meeting could help the aussie regain a foothold against its US peer above 0.6650. 0.6920 is the first hurdle.

USD/CAD rallies as BoC to hold

The Canadian dollar slides as the BoC may defend its pause amid weak growth. The central bank previously stated that no further interest rate increases would be needed if data align with expectations. Canada’s lacklustre GDP growth in the final quarter of 2022 might give policymakers a strong enough reason to stay put and hold the benchmark interest rate at 4.5%. In contrast, the Fed is yet to make the pivot a reality and is widely expected to push the tightening further down the road. The greenback’s advance would reflect such policy divergence. October’s high of 1.3900 is a major ceiling and 1.3450 the immediate support.

S&P 500 awaits NFP catalyst

The S&P 500 bounces back on dovish comments from the Atlanta Federal Reserve president. Mr Bostic’s dovish dissent in favour of quarter-point hikes may help market participants digest a series of hawkish comments from policymakers lately. Investors may regain confidence if they believe the Fed would let previous hikes take effect and avoid an overshoot. However, falling unemployment claims point to ongoing strength in the US labour market and may foreshadow another solid nonfarm payrolls report, which represents a major downside risk for equities. The index steadies around 3900 with 4180 as the first hurdle.