FX Markets Predictably Unpredictable

Being predictably unpredictable is a lot more challenging than one might think, but this notion has been the mainstay on FX markets this year and holding a view beyond one shift is exceptionally challenging for even the most seasoned. Whether its the plentitude of noise from headline risk or the latest reversal of fortunes from global central bankers, there’s certainly no shortage of conflicting drivers in this topsy-turvy world of currency trading.

Still, we have plenty of noise to consume today whether its the tax reform cacophony, central bank musings or a possible escalation in NK geopolitical tension, the air is thick with tension and currency markets are on the move in the early trade as traders evaluate and reevaluate headline risk

With Dudley’s retirement, it’s out with the old and in with the new at the Fed. But overnight Dudley was at his candid best outlining his best vision for the Fed going forward. While hinting at price level targeting, I think it’s safe to assume we should expect a new framework in the offing on how the Fed gauges this New Age Economy in 2018.

The Japanese Yen

Yesterday, the Kuroda inspired USDJPY rally was quickly snuffed out by a heavy dose of Trump protectionist rhetoric, and of course, the possible flare-up in geopolitical tensions have some traders hedging their bets.

There was nothing new from Kuroda who reiterated his dovish rhetoric, but with dollar bulls looking for some apparent reason to buy dollars in the absence of domestic data this week, the BoJ determined dovish tone fit the bill sending them off to the races.

But with concerns, as unlikely as they seem, that North Korea may provoke the US by launching a missile or testing a nuclear weapon during the next leg of Trump’s Asia tour, more than a few investors are on edge. Even more so with an impressive US armada positioned in the western Pacific set to retaliate. And with Trump pledging ” Era To End Of ‘Strategic Patience’ Over North Korea”, things could get messy quickly. Given the escalation of geopolitical tension, the USDJPY should remain a bit soggy this week despite the BOJ’s doggedly dovish efforts to weaken the JPY

The New Zealand Dollar

The New Zealand government released terms of the Reserve Act Review this morning. And the Kiwi bulls gasped a sigh of relief when the New Zealand Finance Minister stated there was no desire to have the NZD included in the RBNZ review. Predictably, we’ve seen some hedges against this specific tail risk unwind as the minor NZD relief rally ensued. As far as other changes in the act, they appear to be more superficial and would do little more than bringing the RNBZ in line with other Central Banker Practices of having multiple decision makers, publication of minutes and the dual mandate. Overall this is positive for the NZD, but the air remains heavy with political uncertainty and traders are showing little appetite to chase the NZD higher in early trade.

The Australian Dollar

It’s tough being an Aussie bear and whatever price action expected pre-RBA statement from those anticipating a dovish tweak to RBA policy is just not panning out. Commodity prices are ramping higher, especially oil and iron ore and with the majority in the market apparently in the RBA’s steady-as-she-goes camp, despite the dismal run of economic data, price action must be respected. But with most of Australia tuning into the Melbourne Cup, perhaps the RBA is in little mood to dampen local festivities anyway. Back to the drawing board for the Aussie bears.

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