HONG KONG- The yen and euro were on the backfoot in early trading on Thursday as traders looked for possible catalysts from policy meetings by the Bank of Japan and European Central Bank.
The dollar was steady against the yen at 113.8, not too far from its four year high of 114.69 hit October 20, while the euro slipped 0.1 percent to $1.1591 heading back towards its 15-month low of $1.1523 also hit earlier this month.
The Australian dollar lost 0.3 percent to $0.7491 but stayed near its three month top after the central bank declined to buy a government bond at the heart of its stimulus program, even though yields were well above its target of 0.1 percent. That sent bond yields higher, a day after a surprise rise in core inflation had sparked rate hike speculation.
The yield target is central to the Reserve Bank of Australia’s case that the 0.1 percent cash rate will not rise until 2024, so any failure to maintain it fuels market wagers that rates will have to rise much earlier, perhaps even by mid-2022.
“For the first time in what has felt for a long time currencies are really driven by interest rate differentials, as central banks start to telegraph where they are in their normalisation cycles,” said Kim Mundy, senior economist and currency strategist at Commonwealth Bank of Australia.
The Bank of Japan is expected to keep monetary policy settings steady on Thursday, and also project inflation to stay below its 2 percent target for at least two more years, reinforcing market bets it will lag other central banks in dialling back crisis-mode policies.
“The BoJ is likely to look through the rebound in the CPI caused by rising commodity prices and a weaker yen,” wrote analyst at Bank of America in a note, saying they anticipated it would “maintain the status quo on all key policy settings, as widely expected.” – Reuters
