Risk appetite started strong in Asia, but weaken as Europe walked through the door. Volatility in USDHKD continue to surges as HKMA withdrew excess liquidity from the banking system by offering additional $HK40bn of exchanges bills. The market was caught short HKD, which has been used as a funding currency in carry trades, causing USDHKD to fall sharply. However, the influence on rates and liquidity is questionable suggesting USDHKD will likely move back about 7.82. In Japan, Japan’s PM Shinzo Abe confirmed that snap elections were on the table (rumored that Oct 22nd could be the proposed date). PM Abe rating have recovered over public worries over North Korea and disarray in the opposition Democratic Party For the market the focus will be on the fate of Abenomics which is connect to the ruling party. USDJPY rally to 111.70 has been is support by expectation another Liberal Democratic Party (LDP) win will extend Abenomics. FX trader will be watching the Polls cautiously, should Abe popularity wane, watch for JPY to gain strength.
By Peter Rosenstreich