Top Forex Market Movers of the Week (Apr. 25-29, 2016)

The forex trading week has come and gone. Time to take a look at the currencies and/or currency pairs that were on the move and what moved them. Were you able to profit from any of this week’s top movers?

Top Forex Weekly Movers (Apr. 25-29, 2016)

Top Forex Weekly Movers (Apr. 25-29, 2016)

As y’all can see, the Japanese yen demolished its forex rivals this week since seven out of the top ten movers are yen pairs. And it’s not as clear, but the Aussie also got the stuffing beaten out of it during the week, as you can see on the table below.

Aussie Pairs (Apr. 25-29, 2016)

Aussie Pairs (Apr. 25-29, 2016)

So, why was the Japanese yen so strong while the Aussie was so weak? Let’s start with the main driver for this week’s yen strength.

The BOJ’s Monetary Policy Decision

  • Monetary policy maintained
  • 7-2 majority vote to keep the benchmark rate at -0.1%
  • 8-1 majority vote to keep its monetary base target of around ‎¥80 trillion a year
  • 8-1 majority vote to purchase Japanese government bonds (JGBs) at a pace of ‎¥80 trillion a year
  • 9-0 vote to introduce ‎¥300 billion worth of zero interest loans to support financial institutions affected by the Kumamoto Earthquake

Aside from the unanimous vote to introduce the zero interest loan program, the BOJ basically sat on its hands during Thursday’s monetary policy decision, causing the yen to dish out a mighty good whuppin’ against ALL its forex rivals. Yee-haw!

But why was the yen’s reaction so strong? Well, if y’all can still remember last week’s Top Forex Market Movers of the Week, I noted then that the yen weakened very hard last Friday due to a “report” from Bloomberg which said that unnamed “people familiar with talks at the BOJ” were claiming that the BOJ may cut the negative interest rates on deposits and may even consider negative interest rates for some loans so that Japanese banks won’t be hit too hard by another deposit rate cut.

Basically, forex traders were already heavily positioned to take advantage of further stimulus from the BOJ, especially since global growth has slowed and the yen has been very strong in the past couple of months, which are both bad for Japan’s export-driven economy. However, the BOJ didn’t introduce more stimulus, even though the BOJ admitted that it downgraded its growth and inflation forecasts, as Forex Gump pointed out in his write-up on the BOJ decision And those (very disappointed) forex traders who were betting on further easing moves likely got out of their short positions on the yen, causing the yen to rally very hard.

USD/JPY: 1-hour Forex Chart

USD/JPY: 1-hour Forex Chart

The lack of further easing moves also caused the Nikkei 225 to crumble by 3.6% within a single day, which very likely spurred demand for the safe-haven yen. I’m not complaining, though. Yee-haw!

Okay, we’re done with this week’s biggest winner, so let’s take a look at this week’s major loser – the Aussie.

Australia’s Q1 2016 CPI readings

  • Headline CPI q/q: -0.2 vs. 0.3% expected, 0.4% previous
  • Headline CPI y/y: 1.3% vs. 1.8% expected, 1.7% previous
  • Core CPI y/y: 1.7% vs. 2.2% previous

The Australian Bureau of Statistics released its inflation report on Wednesday and it was really bad since Australia’s Q1 2016 CPI decreased by 0.2% quarter-on-quarter instead of rising by 0.3%. More than that, this is the first negative quarter-on-quarter reading since Q4 2008. Woah! That’s a really long time! But if you think that’s bad, just know that the annual core inflation reading of 1.7% (1.67% to be more exact) is the lowest ever since 1999. The current core reading also broke two straight quarters of ever improving readings. Given all that, it’s no wonder forex traders dumped the Aussie pretty hard.

That’s not the end of it, though, since Australia’s inflation report was so bad that market analysts began predicting that the RBA may be forced to cut its key policy rate in next week’s monetary policy meeting, which likely amplified the market’s reaction to the poor inflation readings.

AUD/USD: 1-hour Forex Chart

AUD/USD: 1-hour Forex Chart

Do you think these market themes were enough to spark longer-term forex trends? Better keep them in mind (especially the one about Australia’s CPI readings) when planning your trades for next week!

  • Costa

    Hello,
    Generally speaking if the currency appreciates the stock market index should go up too, if I’m not wrong. It is not clear to me why in this case the Nikkey went down?Thank you very much.
    Costa

    • Pip Diddy

      Hey Costa,

      Yep, generally speaking, you’re right. As for the inverse relationship between the yen and the Nikkei index, well, let me try and break it down for ya:

      1. The Japanese yen has been very strong in the past few months, which is nasty business for Japan’s export-driven economy since a higher exchange rate means that Japan’s exports are less competitive.

      2. Additional stimulus is meant to, well, stimulate the economy. And since the BOJ refrained from introducing additional stimulus, market sentiment naturally soured and the Nikkei fell.

      3. Additional stimulus from the BOJ would primarily be via a deeper cut to the negative interest rate on deposits or expanding its QE program (or both). Both measures could potentially lead to currency devaluation. The fact that the BOJ refrained from easing further is therefore good news for the yen bulls.

      4. The Japanese yen is considered a safe-haven currency, so if the Nikkei falls (or other major equity indices for that matter), investors usually flee to the yen.

      I hope was able to sufficiently answer your question.

      • Costa

        Hi Pip Diddy,
        Thank you very much! It is much clearer now!

        • Pip Diddy

          You’re welcome!

          • Costa

            Hi Pip Diddy,

            I am reviewing your answer trying to make sure to understand, I have another question. Is the inverse relationship between the yen and the Nikkei index always true (with some exceptions of course)?

            Thank you
            Costa

          • Pip Diddy

            Hi Costa!

            Yep, the yen and the Nikkei are usually inversely related and today would be a good example since the Nikkei is up by 0.46% to 16,654.69 as I’m writing my reply to you, but at the same time, the yen is losing pretty much across the board.

            The reasons for this is namely the yen’s safe-haven status and the first reason I cited in my earlier reply, which is that Japan’s economy is export-driven, so a stronger yen will actually hurt the economy while a weaker yen will help it.

            I hope that helps!

          • Costa

            Hi Pip Diddy,

            As always your replies are really clear! As you stated, today the Nikkei is gaining whilst the Yen is losing across the board.

            Thank you very much.

          • Pip Diddy

            You’re very welcome, Costa. Just shoot me a question here in the comments section if you need anything else clarified.

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