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Risk Optimism Weighs on Yen and CHF, NZD Outperforms

FOREX
  • Dovish remarks from BOJ Deputy Governor Uchida overnight stoked a strong reversal lower for the Japanese Yen on Wednesday. Limited global event risk has seen USDJPY consolidate towards the best levels of the session, trading close to 147.50 as we approach the APAC crossover.
  • As a reminder, BOJ’s Uchida stated that rates won't be raised if the market is unstable, and the rate path will shift if market moves affect the economic outlook. USDJPY is up 2.15% on the day and the extension of the latest recovery appears to be a correction - allowing an oversold condition to unwind and initial resistance coming in at 149.77, the Aug 2 high.
  • NZDJPY stands out as the key outperforming cross, rising over 3% on the day. This follows the earlier Q2 employment data beat, which prompted RBNZ easing expectations for next week's meeting considerably diminish. NZD/USD remains up 1% and is back above 0.6000, while AUDNZD (-0.50%) continues to grind lower, hovering around the 1.0900 mark.
  • Higher core yields and the associated pressure on the yen also filtered through to the Swiss Franc, a trend that would steadily gain traction throughout the session. Both EURCHF and USDCHF have risen around 1.5% on the day, as the low yielders benefit from the risk-on backdrop. EURCHF price action has significantly narrowed the gap to initial resistance at 0.9478, the June lows, and 0.9527, the 20-day EMA.
    Other major pairs such as EURUSD and GBPUSD remain in very tight ranges as the action remains on currencies sensitive to both widening rate differentials and firmer equity markets. Notably USDMXN has fallen 1.92% and is now lower on the week and trading back below the prior breakout level of 19.20. MXNJPY is up 4.2% on the session ahead of tomorrow’s Banxico decision.
  • Elsewhere on Thursday, RBA Governor Bullock is due to speak at the Annual Rotary Lecture, with Q&A expected. Additionally, RBNZ Inflation Expectations data and US jobless claims data is scheduled.
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