Japanese Yen Extends Slide

Daily Analysis - 26/04/2017

Currency Nears 1-Month Low as Risk Factors Gradually Ebb

The Japanese Yen continued to tumble in overnight trade on Wednesday as risk sentiment improved and investors moved back into equities and other higher yielding assets. The US dollar is rallying in early trade, closing in on a one month high against the Japanese currency as hopes remain high ahead of a proposed tax announcement due from the US Administration later in the session.

French Election Uncertainty Wanes

The safe-haven appeal of the Yen had been rising since the middle of February amidst a surge in populist sentiment across Europe ahead of key national elections. However, investor relief following the first round of the French presidential vote, where centrist candidate Emmanuel Macron emerged victorious, spurred risk appetite, leading to significant outflows from the currency.

Hurting the USDJPY pair was the lift in dollar optimism surrounding a likely tax reform announcement on Wednesday from President Donald Trump. With USDJPY currently sitting below a strong resistance zone around 112.200, failure to break above this critical level could see the Yen resume its medium-term uptrend against the US dollar. The pair was last seen close to 111.500 with the Euro also gaining against the Yen, trending near 121.800 after already rallying more than 4.00% for the week.

US New Home Sales Rise to Highest Since July

Transactions of newly-constructed homes in the US jumped to an eight-month high in March as the housing recovery gathered steam. New home sales stood at a seasonally-adjusted annual pace of 621,000 according to a Commerce Department announcement on Tuesday, a figure that was 5.80% higher than the downwardly-revised February sales rate and 15.60% higher than the same period a year prior.

The March reading was the strongest print since last July, when sales reached a 9-year peak while also beating the consensus estimate of economists forecasting sales to fall to a 582,000 annualized rate. On the back of the better than expected economic data and several robust corporate earnings reports, the Nasdaq Composite breached the 6,000 mark for the first time ever, with June futures of the tech-heavy index trading at 5,550, just shy of a fresh record high.

Australian Inflation Returns to Central Bank Target Band

The annualized consumer price index for Australia surged above 2.00% last quarter for the first time in over two years, further diminishing the likelihood of deflation during the current business cycle. Data compiled by the Australian Bureau of Statistics released overnight showed that consumer prices increased by 0.50% in the three months to March, taking the annual rate to 2.10% from the 1.50% recorded during the fourth quarter.

The figure has entered the Reserve Bank of Australia's 2.00%-3.00% target range for the first time since the third quarter of 2014, as rising electricity and petrol costs more than offset a decline in fruit prices. Underlying inflation, which smooth out volatile price swings, came in at 1.80%. Analysts reckon the latest data point has virtually ruled out any more interest rate cuts. AUDUSD is down in early Wednesday trade, and is currently hovering around 0.7520.

UK Public Sector Borrowings Dip

Government borrowing in the United Kingdom hit the lowest point in nearly a decade amid a jump in corporation tax receipts, data from the Office for National Statistics showed on Tuesday. Public sector borrowing, excluding banks, fell by £20.0 billion to £52.0 billion during the fiscal year ending March 2017 - the lowest yearly borrowings since the twelve months through March of 2008.

Corporate tax receipts jumped more than 21.00% over the last year to a record £55.6 billion, leaving the government well on track to hit its official deficit reduction target. Income tax receipts also grew by 4.70% to £184.0 billion, while total expenditures edged 1.40% higher to £661.0 billion. In the meantime, EURGBP is slightly below a 2-week high reached earlier in the session as post-election optimism in France is spreading to the Euro.