The dollar started off the final quarter of the year with strength, as the prospect of higher U.S. interest rates provided solid support. This pushed the yen to an 11-month low. Currency movements were quiet in early Asian trade due to public holidays in parts of Australia and China. However, the narrowly-averted U.S. government shutdown may bring some relief to the markets. The yen slid towards the 150 mark, a level that could trigger intervention from Japanese authorities. Olivier d’Assier, Axioma’s head of applied research for APAC, noted that fear of intervention above the 146 level has diminished, with the yen now trading above 148 to the dollar and the Bank of Japan absent from currency markets.
At the September meeting of the Bank of Japan (BOJ), policymakers discussed the various factors to consider when exiting ultra-loose policy. They expressed caution about tightening prematurely and suppressing inflation and growth. The euro and sterling both weakened against the dollar, with the euro losing 0.07% to $1.0565 and sterling sliding 0.13% to $1.2188. The yen, however, remained close to its recent 10-month high, standing at 106.24. The U.S. Congress passed a stopgap funding bill to avoid a partial government shutdown. This move should be welcomed by risky assets, according to Chris Weston, Pepperstone’s head of research. Weston also highlighted that the U.S. Labor Department will release nonfarm payrolls data this Friday and the U.S. CPI report on October 12, restoring the potential for a 25-basis-point rate hike at the November Federal Open Market Committee (FOMC) meeting. The Australian dollar fell 0.07% to $0.64305, while the New Zealand dollar declined 0.1% to $0.59925.
In summary, the dollar began the final quarter on a strong note, supported by expectations of prolonged higher U.S. rates. Meanwhile, the yen reached an 11-month low as the Japanese currency continued its gradual decline. However, concerns about the Japanese authorities intervening in the currency market have lessened. The Bank of Japan expressed caution about tightening too early and stifling inflation and growth. The euro and sterling both weakened against the dollar, while the yen remained close to its recent 10-month high. The potential U.S. government shutdown was narrowly avoided, offering some relief to the markets. This development also restored the possibility of a rate hike at the November FOMC meeting. The Australian dollar and New Zealand dollar both saw slight declines.
