AUD: Risk Of RBA Steps Its Dovish Rhetoric But AUD Unlikely To Break Below Range – NAB

Although the RBA is widely expected to remain on hold this afternoon with the market pricing a 5% probability of a rate cut and most economists including NAB’s tipping a no change, the post meeting statement will be closely scrutinised for any signs of an easing bias, particularly given the low core inflation print in Q3 and the disappointing September labour force report which showed a trend slowdown in the rate of employment growth.

So the risk is the RBA steps up its dovish rhetoric, the market is pricing just 12bps of rate cuts over the coming year and a month ago pricing was at 22bps, suggesting there is scope for repricing.

Similarly the AUD could come under some pressure, however a break below the 0.745-0.775 range held since July this year looks unlikely to be tested.

Copyright © 2016 NAB, eFXnews™

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Buy USD/CAD – Citi Trade Of The Week

The fall in oil prices may not be the end of troubles for the Canadian dollar this week. The team at Citi sees a selling opportunity:

Here is their view, courtesy of eFXnews:

Currency investors should consider buying USD/CAD this week, advises CitiFX in its weekly FX pick to clients.

Overall our bullish USDCAD view this week is driven by several factors: oil, likely risk-off across markets, US & CAD employment.

With Poloz and Wilkins both speaking, there is a chance for qualitative risk driving a weaker CAD as well.

Tuesday, Governor Poloz delivers a speech on ’25 years of Inflation Targets: Certainty for Uncertain Times. Poloz should discuss the decision to drop the CPIX for three alternative measures of underlying inflation. Q&A and press conference are to follow, so there is a risk that the Governor will tack more dovish compared to his recent comments.

In Canada, GDP on Tuesday and the job report on Friday are the data highlights. It is very likely that Canada’s labor report is weak (especially in full time) and stands out compared to a stronger US NFP.

Broadly, we want to point out that markets may be vulnerable to ‘risk off’ or defensive trading. Note on Thursday FX markets broke through the lows in ADXY. Oil is trading below $50/bbl again. S&P is at the lows for September. Italian and Spanish CDS jumped on Friday. These are all signs of further defensiveness(with equity (with equities being the most critical for a risk/EM view.) This flags bearish risks moving forward.

Over the weekend – headlines were that an OPEC deal remains elusive, which could further weigh on oil prices early this week,” Citi says as a rationale behind this call.

Citi recommends buying USD/CAD at 1.3415 with a stop at 1.3305, and a target at 1.3595.*

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JPY: Buy USD/JPY Dips – BofA Merrill

Themes: JPY bulls won on the BoJ One-week implied volatility for the USD/JPY options market stands below 10, the lowest level ahead of a BoJ meeting all year. In our view, this reflects not only declining overall market volatility, but also strengthened policy sustainability since a new policy framework was introduced in September as well as recent remarks by BoJ Governor Haruhiko Kuroda indicating any major policy changes are unlikely anytime soon. Moreover, the BoJ’s seemingly new communications strategy-shifting from delivering surprises to guiding expectations-will help avoid unnecessary rise in volatility. As long as the JGB curve remains stable, currency traders’ incentive to trade on the BoJ’s policy meetings will probably subside for some time.

The US presidential election will be the key driver of USDJPY over the short term as the election outcome will have quite binary implications on JPY. If the Republicans win the presidential race, JPY is likely to rally significantly short term amid risk-off trading. If the Democrats win, the market reaction is likely to be limited as it has been largely priced in. Gridlock in the congress would have negative implications on USD while a clean sweep – one party winning the presidential seat and congress – by either party would support the currency.

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That said, we believe the case for the yen’s depreciation into 2017 is strong so that we would be buyers of USD/JPY’s dip rather than sellers of USD/JPY’s strength.

Forecasts: JPY to weaken in 2017 .We have kept our view that 100 is where USD/JPY’s long-term risk reward starts shifting upward. While the US elections pose near-term risk, we believe USD/JPY is likely to rise to 115-120 by end 2017.

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USD/JPY Into BoJ: 4 Resaosn To Buy Any Setback Into 103 – Morgan Stanley

Central banks will be in focus this week, with the BoJ meeting today and tomorrow the starting point. While Governor Kuroda and company are not expected to reveal any changes to the JPY80trn/year QE programme, market participants will watch if there will be any projection change of the BoJ’s 2%Y inflation target into 2018, which may delay further monetary easing steps.

Hence, JPY may rebound in the short term, but any setback in USD/JPY into the 103 handle is viewed as providing a JPY selling opportunity.

Reasons to sell JPY:

There are a number of reasons for our JPY pessimism.

First, the market is still long JPY as illustrated by Friday’s IMM release. Speculative accounts had net yen long positions of +44,595 contracts as of October 25, vs. the previous week’s net long of +36,991 contracts and the record high of +71,870 contracts seen on April 19.

Second, the US yield curve has steepened in October and the steeper US curve is not yet fully priced into USDJPY. Should our economists’ projection of an October US payroll gain of 205k prove correct, thus exceeding the 175k consensus expectation by a wide margin, then USDJPY should receive another boost, inspired by an even steeper US yield curve.

Third, Japan’s fiscal authorities should turn increasingly into focus not due to a renewed fiscal package, but due to the structure of its debt book into the back end of the JGB curve. Japan’s back-end yields staying under upward pressure not only allows the BoJ to execute its JPY80trn QE programme conveniently, but it can also reduce back-end JGB yield volatility, which may be the precondition for banks to shift their JGB positions (which constitute 17% of total bank assets) from the front end towards the back end of the JGB yield curve.

Fourth, Japan’s authorities may have to focus on increasing monetary velocity to fight deflation successfully. A precondition for a higher pace of monetary velocity is commercial bank profitability picking up. Here a transparent, stable and positively sloped yield curve is required.

Copyright © 2016 Morgan Stanley, eFXnews

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AUD: RBA to Let Fed Do the Heavy Lifting – CIBC

After ten years under the helm of Governor Stevens, the RBA’s transition to Governor Lowe has been relatively seamless. That’s been an important factor behind the stability in AUD recently. However, inflation remains cool and employment has disappointed recently. That has pushed up the marketimplied probability of a Q1 2017 rate cut to 35%.

Nevertheless, the RBA would likely rather see the Fed do the heavy lifting for them by raising US interest rates, pushing the Australian currency weaker in the process.

The RBA is likely to get its wish and see the aussie tumble into year-end around the time the Fed hikes rates.

CIBC targets AUD/USD at 0.73 by year-end

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USD Into FOMC: Consolidation More Likely Than New Highs – Credit Agricole

We expect the Fed to stay on hold at the 2 November meeting.

As our US economist argues, the nearness of the Presidential election, in and of itself, would not necessarily preclude a policy move. However, recent data does not suggest any particular urgency to hike, and the Fed would likely prefer to keep a low profile and wait for the December meeting. Another strong reason to wait is that the Fed does not like to surprise the markets. While a December Fed move is now 70% priced in, markets see only a 20% chance of a November hike. The November statement would not need to undergo a significant change to be consistent with a December hike as the Fed had already signalled that the “near-term risks to the economic outlook appear roughly balanced” and that there is a stronger case for tightening policy.

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There will also be plenty of US data to digest including the October non-farm payrolls report where our economists expect a gain of 185K.

The USD has been hanging on the coattails of the long-end of the US yield curve, but given the historical tendency of the greenback to underperform 1-2 weeks ahead of the Presidential elections we think a USD consolidation is more likely than new highs.

Copyright © 2016 Credit Agricole CIB, eFXnews™

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Citi Trade Of The Week: Buy USD/CAD

Currency investors should consider buying USD/CAD this week, advises CitiFX in its weekly FX pick to clients.

Overall our bullish USDCAD view this week is driven by several factors: oil, potential risk-off across markets, US & CAD employment.

With Poloz and Wilkins both speaking, there is chance for qualitative risk driving a weaker CAD as well.

Tuesday, Governor Poloz delivers a speech on ’25 years of Inflation Targets: Certainty for Uncertain Times. Poloz should discuss the decision to drop the CPIX in favor of three alternative measures of underlying inflation. Q&A and press conference are to follow, so there is risk that the Governor will tack more dovish compared to his recent comments.

In Canada, GDP on Tuesday and the job report on Friday are the data highlights. It is very likely that Canada’s labour report is weak (especially in full time) and stands out compared to a stronger US NFP.

Broadly, we want to point out that markets may be vulnerable to ‘risk off’ or defensive trading. Note on Thursday FX markets broke through the lows in ADXY. Oil is trading below $50/bbl again. S&P is at the lows for September. Italian and Spanish CDS jumped on Friday. These are all signs of further defensiveness(with equitie (with equities being the most critical for a risk/EM view.) This flags bearish risks moving forward.

Over the weekend – headlines were that an OPEC deal remains elusive, which could further weigh on oil prices early this week,” Citi says as a rationale behind this call.

Citi recommend buying USD/CAD at 1.3415 with a stop at 1.3305, and a target at 1.3595.*

*This trade is recorded and tracked in eFXplus Orders.

Copyright © 2016 CitiFX, eFXnews™

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AUD Into RBA; JPY Into BoJ – BNPP

We expect the RBA to leave policy unchanged this week, in line with market pricing which currently assigns just 6% chance of a rate cut this week and only 11% by year-end. Commodity exporter currencies remain highly sensitive to the risk environment and, while we expect the USD to correct lower vs. the low-yielder currencies this week, the USD may hold up better vs. the AUD and CAD if the risk environment wobbles. Global equities continue to drive these currencies especially AUD & NZD.

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We expect the Bank of Japan to leave policy unchanged at this week’s meeting after switching to a yield curve targeting regime at its previous meeting. Our economists note the Bank may abandon numerical guidance on its pace of JGB purchases, but only because the guidance has become superfluous given the new yield curve targets. With the BOJ’s new framework now understood by markets, we would not expect a significant reaction to this. The Bank’s quarterly outlook may also push back the timing for achieving 2% inflation by a year, again with limited market impact.

We view BOJ policy as likely to be a neutral factor for markets heading into 2017, with Fed policy the main driver of USDJPY in our bullish forecasts. We target 108 by yearend.

Copyright © 2016 BNP Paribas™, eFXnews™

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Fade USD/CAD Into 1.3450 But Expect Brief & Shallow Dips – TD

The first week of November brings as host of key policy events. The Fed will be closely watched given expectations that the Fed will signal its intent to hike rates in December.

We look for changes to the language that indicate “further evidence” of progress but do not expect an explicit discussion of a hike next month. Still, we expect the language to support current market pricing, arguing for a rate hike at the December meeting. Given the current implied probability of a hike, we don’t expect the Fed to provide much more support for the greenback this week, owing to stretched valuation and overextended market positions. Indeed, a pickup in US inflation surprises is probably needed to jolt the USD out of current ranges, which, for now, suggests a bit more downside from current levels, in particular against the majors.

This backdrop favors some more consolidation in the major currencies with CAD likely to benefit from any dips in the USD.While our estimates of fair value have risen with the price action, we note that USDCAD is trading near the upper end of our trading band.

For now, we like fading USDCAD rallies ahead of 1.3450, but we suspect that dips will be brief and shallow. The mid-point of our estimates suggest that fair value sits near 1.3250, so we view that as healthy support. At the same time, this week also brings some key Canadian releases with speeches from Poloz and Wilkins.

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On the data front, the August GDP report will be closely watched given the recent BoC’s recent downgrade to its growth outlook. TD expects further that growth decelerated again in August, limiting the downside in USDCAD this week. Against the majors, we still like RV trades and expect more downside in AUDCAD.

Copyright © 2016 TD Securities, eFXnews™

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What To Trade Now?: Long USD/JPY Or Short EUR/USD – SocGen

We still prefer dollar, longs against the yen to longs vs. the Euro.

EUR/USD looks like drifting down to 1.08 or so, but we’re still worried about how much Euro softness depends on the ECB crowding private sector investors out of European bonds and the Euro. We’ve written about how tapering of bond purchases could trigger a Euro bounce, but more broadly, a weaker currency was one of the major channels by which ECB policy has worked but if the Euro is now just range-trading and the ECB has virtually run out of ammunition, then we struggle to see a catalyst for another significantly lower.

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By contrast, there are still lots of yen longs out there to squeeze as US rate expectations rise and B OJ policy is well-designed to help yield differentials widen in the favour of the dollar as long as the upward crawl in treasury yields goes on. The only concern is risk sentiment more broadly – I couldn’t make a credible case for Yen softness on a trump win..

SocGen maintains a long USD/JPY from 100.30.

*This trade is recorded and tracked in eFXplus Orders.

Copyright © 2016 Societe Generale, eFXnews™

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