Accommodative Fed Sparking Asia FX Inflows

Earlier in NY, the Fed’s statement shifting the tail end of the range for ‘exceptionally low rates’ from mid-2013 to late-2014 led to a flurry of price action. Broad-based USD weakness vs. G10 and EM currencies ensued and was further spurred on by ‘QE’ supportive commentary by Chairman Bernanke during the Q&A session.

As Asian markets got underway, however, heightened FX volatility levels seen up to the U.S. equity market closing bell quickly died down. USD majors and most EM currencies consolidated into tight ranges on light volumes with two key sovereign players out on holiday – China & Australia. Light volumes in Thursday’s Asia a.m. were also accompanied by light data schedules with no top tier data scheduled for release. By mid-Asia Session, price action was akin to Greek-PSI negotiations – at a standstill.

Price action in FX markets, however, quickly woke up with just a few hours left before the Tokyo close. EM FX clearly outperformed the G10 space vs. USD as prospects of additional Fed accommodation sparked increased demand for ‘riskier’ currencies.

G10 testing resistance vs. USD

* AUD/USD reached multi-month highs above 1.0640 as Fed induced USD weakness spurred on sovereign demand – Russia’s central bank said it may increase its AUD holdings come February. No Oz data as markets were closed in observance of Australia Day and not much in terms of resistance either. The next meaningful resistance level appears to come in at the Oct. 2011 ‘risk rally’ highs around 1.0760.

* NZD/USD shot up during NY market hours despite no change to the 2.5% OCR, a shift in rhetoric by RBNZ Governor Bollard suggesting steady rates for longer than expected (‘prudent now’ to ‘remains prudent’), and negative comments from P.M. Key (‘global outlook makes surplus harder to achieve’). Kiwi currently trading above the 0.8200 figure vs. USD with the Nov. 2011 highs around 0.8240 in view next.

* USD/JPY sustaining above 77.50 on rumored real money demand. Japan weekly securities purchases (week-ended Jan. 20th) saw net Japanese purchases of foreign securities and vice versa. In terms of news-flows, Japanese officials said closely watching U.S. economic management and fiscal policy although perhaps its focus should be keeping its own house in order – Japan forecasted public debt to reach ¥1085.5t yen in the 2012 fiscal year.

* EUR & GBP still trading below highs set in NY trading vs. USD as inflows seem to prefer Asia FX at the moment.

EM taking the elevator up again

* SGD currently trading +.43% higher vs. USD, outpacing all G10 and most EM currencies on a daily % basis. Hearing l/t real money SGD bids behind the move to fresh 2012 highs vs. USD and increased USD/SGD volatility. Singapore Dec. Industrial Production printed better m/m at +7.8% vs. expected +2.2% with a revision to the prior -25.2% figure up to -24.5%. IP y/y also better +12.6% vs. expected +6.4% and revision to previous -9.6% slightly up to -8.0%.

* TRY unchanged vs. USD despite negative IMF comments - Turkish 4Q 2011 GDP growth may be +4.8%, GDP growth may average +0.4% in 2012, & GDP may contract -0.2% in 4Q 2012. Still wide interest rate differentials coupled with relatively parallel volatility (6m%; a-t-m) compared against USD majors seems to be lending the lira continued support.