Forex - Aussie down on hostages report in Sydney CBD, yen up on Tankan

Investing.com - The Japanese yen strengthened further Monday after a mixed Tankan survey and a solid victory by the ruling party in weekend polls, while the Aussie eased on reports of a hostage situation in the central business district of Sydney.

USD/JPY traded at 118.16, down 0.52%, while AUD/USD changed hands at 0.8210, down 0.44% and EUR/USD held at 1.2463, up 0.01%.

Japan's Tankan large manufacturing index fell to +12 in December, while the non-manufacturing index rose to +16 - a mixed picture as expectations were for both to hold stable at +13.

Australian police cordoned off one of Sydney's main business areas, with media reporting that hostages were being held in a cafe, according to Reuters.

Part of Martin Place, home to the Reserve Bank of Australia, commercial banks and close to the New South Wales (NSW) state parliament, was closed off by armed police. Live television footage showed patrons inside a cafe standing with their hands pressed against the windows.

A black and white flag similar to those used by Islamic State militants in Iraq and Syria was also visible. NSW Police tweeted: "A police operation is underway in Martin Place, Sydney's CBD. People are advised to avoid the area."

At the weekend, Prime Minister Shinzo Abe led the ruling coalition to a landslide victory in Sunday's early general elections, as widely expected, with local media projecting it now dominates two-thirds of the lower house of parliament that allows it to override decisions by the upper chamber.

In the absence of strong opposition, the ruling parties appeared to have won 326 seats, well above 317, two-thirds of the 475-seat House of Representatives (the total was reduced from 480 in this election), public broadcaster NHK reported.

Last week, the dollar gained ground against the euro on Friday following the release of strong U.S. economic data and surged to more than five year highs against the commodity-exposed Canadian dollar as oil prices continued to drop.

The preliminary reading of the University of Michigan's consumer sentiment index rose to 93.8, the highest level since January 2007 and ahead of forecasts of 89.7. Consumer sentiment was boosted by the improving outlook for employment and wage growth and lower gasoline prices.

The data underlined expectations for a hike in U.S. interest rates by the Federal Reserve next year.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, was down 0.14% at 88.45.

In the week ahead, investors will be awaiting the outcome of Wednesday’s Federal Reserve policy meeting for further clarification on when interest rates might start to rise. Japan’s central bank is also to hold a policy setting meeting next week. The euro zone is to produce what will be closely watched reports on private sector activity.

On Monday, Switzerland is to publish data on producer price inflation. In the euro zone, Germany’s Bundesbank is to publish its monthly report. The U.K. is to release private sector data on industrial order expectations.

Later Monday, the U.S. is to release reports on manufacturing activity in the New York region and industrial production.