The BOJ decision to leave policy unchanged was a catalyst for this morning’s risk aversion though no-one was looking for any move and the fact that the oil bounce ran out of steam could be blamed just as much.
I think USD/JPY is forming a base here and look for a grind back up towards 120 over the next few weeks, but that move may not get underway until after the FOMC concludes tomorrow evening. Even then, it is dependent on risk sentiment not suffering at Ms Yellen’s hands. Oil in particular, is an unreasonably huge driver of FX markets this year and we’ve seen so many bounces run out of steam and be completely reversed over the last year that nervousness is hardly surprising. Think riding a bicycle slowly over an oil-covered road...
The RBA Minutes have prompted newswire quotes of the final sentence: “Members noted that continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand.”
The Minutes overall are much more neutral but as RSIs drop back from their recent spike AUD/USD drifts below 0.75, the technical picture looks bearish short-term. We’d still rather short the NZD here than the AUD, remaining long AUD/NZD.
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