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On October 23, as the sell-off in tech stocks intensified, investors flocked to traditional safe-haven assets, including the yen, Japanese government bonds, and US Treasuries, pushing the yen to its highest level in over a month. After trading within a narrow range for several weeks, the yen broke out of this range in the past 24 hours, currently reaching its highest level since September 18 (the day the Bank of Japan raised interest rates). During Fridays Tokyo trading session, the yen rose as much as 0.4% against the dollar, hitting 156.08; previously, it had already recorded a 0.9% gain on Thursday. Asian stocks followed Wall Street lower, influenced by continued investor withdrawals from tech stocks. The price of Japans benchmark 10-year government bond surged, with yields falling 10 basis points; US Treasuries largely maintained Thursdays gains. "The yen is more favored than the dollar as a safe-haven asset," said Carol Kong, a strategist at Commonwealth Bank of Australia. "This weeks earnings reports from major U.S. tech companies have raised questions about the AI-driven U.S. growth narrative." She added that the yen could strengthen further against the dollar if the unwinding of tech stock positions intensifies.October 23 – Japans core consumer inflation exceeded the central banks 2% target for the first time in nine months in September, indicating expanding price pressures and reinforcing the case for a recent interest rate hike. These figures highlight that the protracted Middle East conflict pushing up fuel costs, a weaker yen leading to higher import prices, and strong AI demand are eroding the effectiveness of government fuel subsidies. Masato Koike, senior economist at Sompo Institute Plus, stated that core inflation is expected to accelerate due to rising energy costs caused by the Middle East conflict and its subsequent second-round effects. However, since prices are not accelerating sharply, a second rate hike in October is almost unnecessary, and the next rate hike by the Bank of Japan is expected in December. Marcel Tiliant, head of Asia Pacific at Capital Economics, expects the Bank of Japan to maintain its policy unchanged next week but will hint at continued concerns about upside risks to inflation. There is little evidence that the tightening so far has slowed the economy, and risks are tilting towards a peak policy rate higher than Capital Economics 2% forecast.Gold prices weakened on Friday, on track for their biggest weekly drop in over four months. Soaring oil prices and strong U.S. economic data fueled expectations that the Federal Reserve will maintain high interest rates for an extended period. High energy prices reinforce these expectations, increasing the opportunity cost of holding non-yielding gold. Last week, U.S. initial jobless claims fell to their lowest level in nearly 57 years, indicating a modest recovery in job growth in October. Market focus has now shifted to the Federal Reserves policy meeting on October 27-28 and next weeks PCE data release. The PCE data is a key indicator closely watched by the Federal Reserve.The yield on Japans two-year government bonds fell 6 basis points to 1.840%.On October 23, Turki al-Maliki, a spokesman for the Saudi-led coalition, stated on social media that they had intercepted and destroyed a ballistic missile launched by Yemens Houthi rebels towards the Saudi capital, Riyadh. Earlier, air raid sirens were sounded in Riyadh, and multiple explosions were heard.

Below 0.6350, AUD/USD draws bids; the downside is preferred before US CPI

Alina Haynes

Oct 10, 2022 11:30

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The AUD/USD pair has risen after dropping below immediate support near 0.6350 during the Asian session. Given that the market attitude is still unfavorable, the asset's outlook does not appear positive. The S&P 500 fell into a trance as a result of Friday's positive US Nonfarm Payrolls (NFP) numbers, which extended the US dollar index's (DXY) recovery.

 

At 112.88, the DXY in Tokyo has eclipsed the previous week's high and is expected to continue to rise as hawkish Federal Reserve (Fed) policy bets soar. The US NFP came in at 263k on Friday, more than the 250k forecast. Due to this, there is now a higher chance that interest rates will rise for a fourth consecutive time by 75 basis points (bps). A healthy labor market and stronger economic fundamentals are always required for the central bank to safely announce rate increases.

 

Rates have increased as the likelihood of a 75 basis point rate increase has increased. The yield on the US 10-year Treasury bond reached 3.9% and increased for four straight days.

 

Investors' attention will then turn to the publication of US Consumer Price Index (CPI) data on Thursday. Preliminary predictions indicate that headline inflation will drop from 8.5% to 8.1%. The core CPI, which does not include prices for food and energy, will rise from 6.3% to 6.5%. The Federal Reserve's decision to raise interest rates seems to be having little impact, but the drop in gas prices has started to have an impact on the headline inflation rate.

 

The consumer inflation expectations statistics are expected to be released later this week, according to the Australian bulls. The economic statistics are projected to increase to 5.8% from the previous report's 5.4%. This could encourage the Reserve Bank of Australia to act (RBA). The Official Cash Rate (OCR) was raised by 25 basis points to 2.6% by Reserve Bank of Australia (RBA) Governor Philip Lowe, and he plans to continue raising it until it reaches the desired level of 3.0%.

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