USD/JPY Finally Broke 100, Aussie Dived

The yen was sold off broadly, and its weakness continued throughout the Asian session. The USD/JPY finally broke through the 100 psychological level for the first time in 4 hours, while the EUR/JPY also took out recent resistance at 131.72. Data from Japan saw investors buying a net total of JPY 514b in foreign bonds in the week leading to last Friday. Note that Japanese investors have been net selling foreign bonds for most of this year. The data implies that recent massive monetary easing is pushing the Japanese to foreign investments. Other data from Japan indicated that current account surplus came in narrower than expected at JPY 0.34T; Eco watch current gauge dropped to 56.5 in April. Technically, note that USD/JPY, EUR/JPY, GBP/JPY and CAD/JPY pairs had resumed the recent uptrend and we expect more broad base yen selling in the near term.

Another development to note was the Aussie weakness. The AUD/USD dropped through, and important support at 1.0115 is now heading back to parity. Famous investor Stanley Druckenmiller was quoted as saying the Aussie will "come down hard". Earlier this week, George Soros was reported to be backing a USD 1b bet that the RBA would cut rates this week. Meanwhile, in its quarterly economic statement, the RBA lowered its inflation forecast to 2.25% by the end of this year, down from the prior projection of 2.5%. Growth is projected to be at a sluggish 2.5% and stay below trend. The central bank said that "the outlook for non-mining business investment remains relatively weak over the next few months", and "the approaching peak in resource investment, the high level of the Australian dollar and ongoing fiscal consolidation are all likely to weigh on growth over the next year or so."

In the U.S., yesterday's jobless claims data raised peculations that the Fed would taper QE measures earlier than expected. Comments from Fed officials delivered mixed message on the issue. Philly Fed President Plosser reaffirmed his hawkish view that QE should be slowed down, as it had contributed little to boosting the job market. Chicago Fed's Evans affirmed that "during the time that we've been doing our asset-purchase program, the labor market has improved, definitely" and he would like to see sustainable "improvement in the labor market through the summer".

Looking ahead, the U.K. will release trade balance in the European session. Canadian employment will be the main focus in the U.S. session. The Canadian job market is expected to grow 13.5k in April, with unemployment rate unchanged at 7.2%. Fed Chairman Bernanke will speak at a Chicago Fed Conference on "Monitoring Finance". G7 Finance Ministers and central bank governors are scheduled to meet in London over the weekend.

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