US Dollar and Japanese Yen Higher on Risk Aversion

Market Reviews

The US dollar rose against major currencies, as the US Federal Reserve kept interest rates unchanged in the range of 2-2.25% and reiterated its position on tightening monetary policy. This year, the Fed raised its key rate three times, and the market expects another increase in December due to a stable US economy, rising inflation and stable job growth.

Japanese yen is also trading generally higher today thanks to risk aversion in Asia. US bond yields also rose. 5-year yield closed up 0.029 at 3.090. 10-year yield rose 0.021 to 3.234. 30-year yield, though, was just up 0.002 at 3.427.

On stock markets, Nikkei lost 0.86%, Hong Kong HSI fell 2.26%, China Shanghai SSE dropped 1.11% and Singapore Strait Times fell-0.72%. Stocks in the US were soft with DOW closed up 0.04%, S&P 500 and NASDAQ closed down 0.25% and 0.53% respectively.

According to the RBA economic projections, 2019 GDP growth will be 3.25%. Meanwhile, 2020 year-average GDP growth projection was raised slightly from 3.00% to 3.25% too. Unemployment rate is forecast to drop to 5.00% by end of 2018, stay there through 2019 and then drop further to 4.75% in by June 2020.

Headline inflation by December 2018 was raised from 1.75% to 2.00%, indicating that the temporary drag was less severe than expected. CPI would then climb further to 2.25% by December 2019 and stay there still December 2020, unrevised. Core inflation is projected to be at 1.75% by the end of 2018. Core CPI would then rise to 2.25% by December 2019, revised up from 2.00%. For December 2020, core CPI is projected to stay at 2.25%, unrevised.

Today’s data showed that Japan M2 rose 2.7% yoy in October versus expectation of 2.8% yoy. China CPI was unchanged at 2.5% yoy in October, matched expectation. China PPI slowed to 3.3% yoy, missed expectation of 3.4% yoy. Australian home loans dropped 1.0% mom in September, slightly better than expectation of -1.1% mom.