The Australian dollar is staggering its way towards 2018, trading in a thin range throughout Wednesday.
Here’s the scoreboard as at 8.10am AEDT.
AUD/USD 0.7664 , 0 , 0.00%
AUD/JPY 86.89 , 0.41 , 0.47%
AUD/CNH 5.0295 , -0.0298 , -0.59%
AUD/EUR 0.6452 , -0.0017 , -0.26%
AUD/GBP 0.5726 , 0.0003 , 0.05%
AUD/NZD 1.0983 , 0.0001 , 0.01%
AUD/CAD 0.9832 , -0.0036 , -0.36%
The AUD/USD is largely unchanged for the session, showing little reaction to the passing of US tax reforms and a subsequent lift in US bond yields.
“Bonds rather than equities or currencies continue to hog the limelight,” said Ray Attrill, Head of FX Strategy at the National Australia Bank (NAB).
“German 10-year Bund yields are up another 2.5 basis points (bps) — now to above 40bps from below 30bps at the start of last week — while 10-year US Treasuries are nudging 2.50%, also up 2.5bps on the day having been below 2.35% this time last week.”
While the lift in German bond yields acted to support the euro, it did little to support the US dollar.
The greenback also showed little reaction to news that US tax reforms had been passed by Congress, suggesting that this outcome was all but priced into markets. Strong US economic data — revealing existing home sales jumped to an 11-year high in November — was also overlooked by traders.
Given an absence of other market-moving data, that ensured a quiet session for the Aussie dollar.
Looking to the day ahead, there’s a few events that carry the potential to generate some short-term volatility in markets.
At 8.45am AEDT, New Zealand Q3 GDP will be released, a report that will likely move the Kiwi dollar, and as a consequence the Aussie.
Later in the session, the Bank of Japan (BoJ) will also announce its December monetary policy decision, providing another event that could spice things up a little.
It’s possible the BoJ will signal the death of a formal ‘QQE’ [Quantitative and Qualitative Monetary Easing] policy,” says Attrill, adding that the bank will almost certainly retain its targeting of Japanese 10-year government bond yields, known as “yield curve control”.
For several years the BoJ has committed to buy around 80 trillion yen per annum of Japanese government bonds in an attempt to lower longer-dated borrowing costs. However, it has not been buying anywhere near that level of bonds this year despite its commitment to anchor 10-year yields at around 0%.
This naturally raises questions as to how relevant an annual purchase target is given the BoJ has managed to keep yields around this level despite significantly lower asset purchases.
If the BoJ does decide to ditch the annual purchase figure, Attrill says it “should not be judged as a ‘Yen positive’ event”.
The decision could arrive at any point after midday AEDT.
Outside of monetary policy, Catalonia will go to the polls to elect a new government — one to watch given the geopolitical risks — while in North America the final read of US Q3 GDP and Canadian CPI and retail sales for November will also be released.