The return of risk aversion carried over from US hours and into Asian trade. The sentiment-linked Australian and Canadian Dollars are underperforming, with prices tracking steep declines across regional stock exchanges. The anti-risk Japanese Yen is trading broadly higher.
The New Zealand Dollar has managed to diverge, registering modest gains following a better-than-expected set of fourth-quarter employment figures. The jobless rate unexpectedly fell to a seven-year low of 5.3 percent. The Kiwi rose alongside front-end bond yields, hinting the upbeat data release weighed against RBNZ rate cut speculation.
Looking ahead, UK PMI figures and the US ADP employment report are in focus. Both releases are likely to be analyzed through the prism of monetary policy expectations ahead of the BOE rate decision on Thursday and the official set of US jobs figures on Friday. Soft results that fuel hopes for delayed stimulus withdrawal are likely to boost risk appetite, trimming losses in commodity FX and capping Yen gains. Alternatively, upbeat numbers may amplify risk-off momentum.
Portfolio readjustment may be another potent catalyst for a recovery in risk appetite. Traders are unlikely to want to carry aggressive directional exposure into high-profile event risk in the final 48 hours of the trading week. This means that a move to rebalance toward neutral after yesterday’s aggressive risk-off push pay fuel a rebound in sentiment-geared assets.
DailyFX analysts expected the selloff in early 2016. See our forecasts to find out what is likely next.
Asia Session
