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?
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.
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.
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.
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!