US Dollar Reaches 3-Month High Against Yen

Daily Analysis - 23/10/2017

Shinzo Abe’s Sweeping Victory Propels Greenback Surge


The dollar hit a three-month high against the Yen on Monday following Japanese Prime Minister Shinzo Abe's emphatic victory in Sunday’s snap polls. The re-election of Abe signalled a continuation of Yen-weakening fiscal and hyper-easy monetary policies, forcing investors to turn bearish on the haven currency.

Dollar Bulls Cheer Senate Approval of Budget Blueprint

Shinzo Abe's ruling coalition garnered a two-thirds "super majority" after securing 312 of the 465 seats. While the election result was largely along expected lines, the magnitude of the mandate dented investor sentiment in the yen. The USDJPY pair spiked to as high as 114.09 following the news, its highest level in more than three months.

The greenback was already on bullish footing thanks to the US Senate approval of a budget blueprint for fiscal year 2018, overcoming a critical hurdle for Republicans to proceed with their tax-cut package. On the economic data front, sales of existing homes in the United States rose 0.70% month-on-month through the end of September to a seasonally adjusted annual rate of 5.39 million units, easily beating market expectations of a -1.00% drop. After briefly climbing above the 114.000 mark, USDJPY has since pulled back to around 113.700.


China New Home Prices Register Weaker Growth

Government measures to cool a booming Chinese property boom took hold in September, with the cost of new homes rising at the slowest pace in 17-months. According to a Reuters weighted average based on official data from the National Bureau of Statistics, the average cost of new housing in 70 major cities increased 6.30% last month. The figure marked the tenth straight month of deceleration and the slowest growth rate of increase since April of 2016. In yearly terms, prices gained in all but 3 of the 70 cities surveyed, with the notable exceptions being Shanghai, Shenzhen and Chengdu.

While property market analysts do not anticipate significant price declines, weakness in the sector is beginning to drag on broader economic growth. USDCNH is off the highs of Monday overnight trading to currently hover around 6.6330.


German Producer Prices Advance

In another confirmation that deflation risks in Germany have further eased, producer prices in the country rose at the fastest clip in 5-months during September, with inflation climbing across all the main industrial groups. Data from the Federal Statistical Office published on Friday showed that the Producer Price Index edged 3.10% higher on an annual basis through the twelve months ended in September, compared to a 2.60% rise in the prior month. It was the highest level of input price inflation since April, and topped the consensus market estimate of a 2.90% gain.

Inflation in Europe’s biggest economy has improved markedly this year, boosted by stronger than expected growth across the currency bloc and a rebound in energy prices. DAX 30 futures are pushing back towards 13000 ahead of the all-important European Central Bank meeting approaching on Thursday.


Canadian Inflation Accelerates

The pace of Canada’s annual inflation moved closer to the Central Bank’s target, rising to the highest level in five months in September amidst higher gasoline and food prices.  Data unveiled by Statistics Canada showed that the annual inflation rate surged to 1.60% last month from 1.40% in August, matching the consensus forecast.  Gas prices were one of the main drivers of the index’s gains, with inflation dropping to 1.10% when stripping out the energy price increase.

Separate figures from the statistical agency revealed that Canadian retail sales contracted by 0.30% in August after growing 0.40% a month earlier. Excluding sales at auto dealers and gas stations, the report highlighted a -1.30% decline in retail trade during August. Sales also fell -2.50% at food and beverage outlets and -2.40% at home furnishings stores. The USDCAD pair is flat near 1.2625 after giving back most of the earlier session gains.


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