● The new policy setup has two objectives: pushing down real interest rates, controlling the curve, and supporting inflation expectations. This means that some of the problems which had been undermining the strategy previously pursued will effectively be tackled. The yen reacted by weakening, but the movement was contained, both against the dollar, with a small decline from USD/JPY 101 to 102, inside the narrow range outlined in the past two weeks, and against the euro, from EUR/JPY 112 to 114. However, the announcement of a new policy framework is in any case a good starting point per to prevent a further appreciation of the yen. On the other hand, a real downward thrust for the Japanese currency, and therefore its downside reversal – albeit gradual – should come from the fed funds hike.

● NZD – This evening, the meeting of the Reserve Bank of New Zealand will end. Consensus expectations unanimously point to stable rates at 2.00%. However, given the New Zealand dollar’s sharp appreciation since the beginning of the year (+17% from NZD/USD 0.63 to 0.74) the RBNZ could leave open the option of another potential cut, to prevent the currency from appreciating further. A Fed hike should in any case contain the NZD’s upside margin.

Forex Watch, Fundamental Analysis, fx trader, forex, chart 1

Forex Watch, Fundamental Analysis, fx trader, forex, chart 2Source: Thomson Reuters and Intesa Sanpaolo elaborations

Asmara Jamaleh
Economist – Forex Markets
Intesa Sanpaolo Research Department