USD/JPY: Heading To 2013 High After Brief Consolidations

The dollar regained some grounds overnight as markets continued to price in Fed's tapering. The Dow also dropped for another day on such backdrop and closed -104.1 pts lower at 15739.43 and long term yields rose mildly. While the greenback is still stuck in tight range against European majors, its strength was more apparent against the Japanese yen and Australian dollar. The USD/JPY's retreat proved to be short-lived as the pair resumed recent rally and reached as high as 103.65 so far, which is close to 2013 high of 103.73. The pair took the EUR/JPY to new 2013 high of 142.51. The expectation of diverged policy path was the main driver in the moves as Fed is expected to scale back the asset purchase while BoJ is expected to launch another round of easing next year to boost inflation to its 2% target. Fed and BoJ will meet next week.

The Aussie extended recent decline and is heading back to this year low of 0.8847 against dollar on RBA governor Stevens' comments. He noted yesterday that depreciation in Aussie's exchange rate is preferred to further interest rate cuts to boost the economy. And, the AUD/USD at 0.85 is "closer to the mark" than 0.95. He noted that while at this point the benefits of intervention haven't "so far" outweighed the costs, it "doesn't mean we will always eschew". The Aussie is so far the worst perform this week, down against all other major currencies.

The Canadian dollar also weakened after BoC governor Poloz's comments. He noted that the two main risks facing the economy are deflation and household indebtedness. He expected both risks to "diminish over the next two year or so", with a "soft landing in housing" and a "pickup in exports and investments. But, he also warned that the "risks around this base case need to be managed."

On the data front, New Zealand business manufacturing index rose to 56.7 in November. Swiss PPI and US PPI will be released later today.