Risk Off! JPY In Command, Metals And Crude Off

against its rivals through the European session as USD/JPY tested ¥ 96.97, EUR/JPY sank to ¥ 129.28, GBP/JPY fell to ¥ 151.72, and AUD/JPY hit ¥ 87.58. Traders unwound riskier longs as the markets focused on a likely taper in QE policy by the Fed next month with a US$ 10 billion easing in Fed asset purchases a target. JPY bounced back after yesterday’s July trade data revealed a record ¥1.024 trillion deficit, up sharply from ¥182.3 billion in June. June all industry activity printed at -0.6% m/m and July nationwide and Tokyo department store sales were both sharply lower with July convenience store sales also off. July machine tool orders numbers are due on Thursday.

The Australian Dollar was significantly weaker against peers through the European session as AUD/USD tested US$ 0.9026, EUR/AUD climbed to A$ 1.4763, and GBP/AUD vaulted to A$1.7324. Minutes from RBA’s August meeting minutes revealed the A$ remains elevated in historical terms and will help guide monetary policy and policymakers indicated an additional rate cut may be possible, but is not a definite. RBA also projected Chinese economic growth will remain lukewarm in upcoming quarters and the inflation outlook should remain on the low end.

The New Zealand Dollar fell sharply against other currencies through the European session with NZD/USD testing US$ 0.7951, EUR/NZD reaching NZ$ 1.6757, and NZD/JPY diving to ¥77.22. RBNZ Governor Wheeler moved the markets today when he announced new lending restrictions that will be imposed from 1 October to slow the growth in house prices. Q3 2-year inflation expectations rose to 2.36% from the prior 2.06% level, an indication of price ongoing price pressures. Swaps now indicate about 85bps of rate hikes from RBNZ over the next year and 10-year yields reached 4.66%, their highest level since October 2011. Wheeler also indicated new policy tools will provide RBNZ will more policy flexibility and again stated NZ$ is overvalued.

The Euro turned in a mixed performance across the board through the European session as EUR/USD gained to US$ 1.3355, EUR/GBP tested £0.8533, EUR/CHF relaxed to CHF 1.2284, and EUR/NZD rocketed to NZ$ 1.6757. German July producer prices moderated to -0.1% m/m and +0.5% y/y, below expectations and Eurozone June construction output data are expected. The ECB is expected to keep policy unchanged for the foreseeable future. Traders are also focusing on possible additional European credit assistance to Greece. Thursday’s data include PMI numbers followed by German Q2 GDP data and Eurozone August consumer confidence on Friday.

Gold and Silver extended yesterday’s losses as Gold was capped around $1369.63 and tested $1352.22 while Silver ran into selling pressure around $23.20 and traded as low as $22.29. Traders reduced exposure to the metals ahead of tomorrow’s release of minutes from the Fed’s July FOMC meeting and possible further clues as to whether or not the Fed will begin to reduce stimulus measures. Gold has recently had a bid with stronger physical demand from India and China cited, along with a likely slowdown in larger outflows of ETFs.

Crude Oil came off sharply through the European session with Brent futures testing $108.36 after meeting resistance around the $109.49 area and WTI trading as low as the $105.40 level. Some traders believe the ongoing disruption to Libyan oil supplies will continue for quite some time with Iraq’s problems extending later into the year, two factors that could lead to higher prices. OPEC outages have reduced 33 million barrels from the market this summer and IEA has projected a 32 million barrel downward revision to aggregate OECD petroleum inventories. WTI prices may be softened by the ongoing shale revolution, and its positive influence on U.S. Strategic Petroleum Reserves.