The 'last hawk' and the 'dairy bull' vs the paralyzed Yen

The prevailing theme to focus on is the continuing policy chasm between the Antipodean central banks and the Bank of Japan. We have witnessed the Australian Dollar and New Zealand Dollar fundamentally decouple from the Japanese Yen over the last month, driven by hard economic data. The AUD rallied aggressively after the economy added over 65,000 jobs and printed a 3.8 percent inflation figure, while the NZD found a structural floor thanks to a 6.3 percent surge in dairy prices and sticky 3.1 percent inflation. Conversely, the Yen has been battered by political instability and a Bank of Japan that refused to hike rates on January 23 despite rising inflation forecasts, leaving it vulnerable.

Looking ahead, it is convincing that this trend will accelerate, offering clear opportunities for carry traders. The Reserve Bank of Australia is poised to be the “Last Hawk Standing,” with a rate hike to 3.85 percent likely on February 3. Simultaneously, the Reserve Bank of New Zealand will likely confirm the end of its cutting cycle on February 18. In contrast, Japan faces a general election on February 8 and a potential confirmation of technical recession with the GDP print on February 15. This creates a perfect storm: you want to sell the paralysed, politically unstable Yen and buy the high-yielding, inflation-fighting currencies of the South Pacific.

• Australia CPI (Jan 28): 3.8 percent beat confirms sticky prices; RBA forced to act.
• RBA Decision (Feb 03): Hike to 3.85 percent heavily priced in; major bullish catalyst.
• Japan Election (Feb 08): Political risk premium to weigh heavily on JPY.
• Japan GDP (Feb 15): Recession risk (-2.3 percent forecast) prevents BoJ normalisation.
• RBNZ Decision (Feb 18): Hold expected; confirms end of easing cycle.
• NZ Dairy Auctions (Feb): Continued price strength will support NZD terms of trade.