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Hawkish Central Bank Musings Spoil Sentiment, BoJ Chatter Supports Yen


The growing prominence of hawkish overtones in recent comments from Fed members continued to undermine appetite for risk assets, with Asia-Pac equity benchmarks taking their cue from Thursday's tech-driven rout on Wall Street. Expectations of global policy tightening were fuelled by a back-to-back rate hike from the BoK, who signalled that their policy rate remains below its neutral (i.e. neither expansionary nor contractionary) level. Elsewhere, Reuters reported that the BoJ are debating how to begin messaging an eventual interest rate hike, which could be delivered before the Bank meets its inflation target (albeit not imminently).

  • The yen caught a bid on the back of broader risk aversion and hawkish BoJ musings. This allowed USD/JPY to extend this week's losses past the Y114.00 mark, which provided a layer of support on Thursday. Recall that the BoJ hold a monetary policy meeting next week and may modestly upgrade their FY2022 inflation forecast.
  • The Antipodeans landed at the bottom of the G10 pile amid reduced appetite for risk proxies. The USD also traded on a softer footing, but the dollar index (DXY) struggled to break below its 100-DMA. This occurs ahead of a long weekend in the U.S. which may thin out liquidity on Monday.
  • Yuan bulls breathed a sigh of relief after the PBOC set their central USD/CNY mid-point just 15 pips above average estimate (as per Bloomberg survey of analysts), a moderation from yesterday's 60-pips bias. A solid round of Chinese data, which showed that monthly trade surplus topped expectations and hit an all-time high, failed to move the redback.
  • UK economic activity indicators as well as U.S. industrial output & retail sales take focus from here. The central bank speaker slate features Fed's Williams, ECB's Lagarde & Riksbank's Ingves.

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