- Both currencies are stronger now than before easing expanded
- Fed refraining from rate increases has weighed on dollar
For policy makers from Tokyo to Sydney, expanding stimulus has proven to be no guarantee of a weaker exchange rate.
The yen and the Aussie are both trading stronger than before the announcement of increased stimulus in Japan and Australia over the past few days. The two currencies lead gains among developed-market peers since June, appreciating at least 2 percent against the dollar. Bank of Japan Governor Haruhiko Kuroda and Reserve Bank of Australia Governor Glenn Stevens have each indicated currency strength represents a headwind for their economies.
Their difficulties are partly explained by the Federal Reserve’s decision to hold off from raising interest rates so far this year, because of lackluster U.S. growth amid flare ups in geopolitical tension -- including the U.K.’s decision to leave the European Union. That’s weighed on the greenback, with futures signaling tighter U.S. monetary policy won’t happen until mid-2017.
“The RBA delivered about what was expected, but the Aussie got caught up in the U.S. dollar’s fall,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Auckland. “Had the BOJ been bolder, the yen would probably have weakened.”
The yen traded at 101 per dollar at 6:54 a.m. in London, down 0.1 percent from Wednesday’s close. It earlier fell as much as 0.5 percent after Japanese Vice Finance Minister Masatsugu Asakawa said officials are carefully watching nervous moves in foreign-exchange markets. The yen had surged 4.3 percent over the previous three days.
“No one wants to get involved at current levels ahead of nonfarm payrolls on Friday,” said Chester Liaw, a senior economist at Forecast Pte Ltd in Singapore. “The exporters are not willing to take the risk of a poor number which would take dollar-yen below 100.”
Kuroda and his board disappointed investors Friday by leaving two key policy tools -- bond buying and the negative deposit rate -- unchanged, even as they increased exchange-traded-fund purchases. That sentiment was compounded after details of a 28 trillion yen ($278 billion) fiscal spending package released Tuesday failed to ignite optimism that Prime Minister Shinzo Abe can revive the world’s third-biggest economy.
“I expect Japan’s policy makers to be increasingly vocal about intervention as we near 100 yen,” Stephen Innes, a senior trader at Oanda Corp. in Singapore, wrote in a note. “Ultimately, without any meaningful and sustained stimulus commitment from Japan’s policy makers, the outlook for the dollar-yen looks extremely vulnerable.”
The Aussie fell 0.3 percent to 75.88 U.S. cents, following a 1 percent rally on Tuesday, when the RBA cut its key rate by a quarter point to an unprecedented 1.5 percent, in a move predicted by 20 of 25 economists surveyed by Bloomberg. Futures indicate a better than even chance of an even deeper record-low cash rate by year-end.
New Zealand’s dollar sank 0.6 percent to 71.99 U.S. cents, after wages rose less than economists forecast. It climbed 1 percent Tuesday.