Forex - Yen, Aussie seasaw ahead of ECB, China reverse repo aids flows

Investing.com - The Japanese yen and Australian dollar showed more volatility on Thursday as China moved to aid liquidity in the market and investors took positions ahead of a European Central Bank meeting expected to ease policy further.

AUD/USD traded at 0.8066, down 0.25%, while USD/JPY traded at 118.26, up 0.25%. EUR/USD changed hands at 1.1602, down 0.06%.

In Australia, MI inflation expectations showed a weighted median view of 2.4%, compared to 2.6% in November, hinting that like dollar bloc nation Canada the global commodity slump is diminishing inflation concerns, while HIA new home sales for November rose 2.2%, compared to the previous month gain of 3.0%.

China's central bank said late Wednesday that it had rolled over a 269.50 billion yuan ($44 billion) medium-term lending facility for banks and provided an additional 50 billion yuan in loans to commercial and rural lenders in a 7-day offering with the rate set at 3.85%, from 4.1% previously. Interbank money rates rose earlier this week as liquidity remained tight after tax payments and on concerns of more capital outflows. The People's Bank of China has pledged to keep liquidity stable but adjust as economic conditions require.

Overnight, the dollar trimmed losses against the other major currencies on Wednesday, inching its way back toward recent 12-year highs as investors turned their attention to the European Central Bank's upcoming policy meeting on Thursday.

Earlier Wednesday, the U.S. Commerce Department said that the number of building permits issued last month decreased by 1.9% to 1.032 million units from November’s total of 1.052 million.

Analysts expected building permits to rise by 1.3% to 1.055 million units in December.

The report also showed that U.S. housing starts rose by 4.4% last month to hit 1.089 million units from November’s total of 1.043 million units, compared to expectations for a reading of 1.040 million.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, traded up 0.12% at 93.12.

Sentiment on the single currency remained vulnerable as investors waited to see if the European Central Bank would embark on an outright quantitative easing program on Thursday.

On Wednesday, the Bank of Japan maintained the size of its stimulus program and reiterated its pledge to increase base money at an annual pace of ¥80 trillion through buying government bonds and risk assets.

The central bank also cut its core inflation forecast 1% from 1.7% three months ago.

The loonie weakened broadly after the Bank of Canada unexpectedly lowered its overnight target rate to 0.75% from 1.0% previously, saying that the rout in oil prices over the past six months would be negative for growth and underlying inflation in Canada.

The BoC said it now expects economic growth to slow to about 1.5% and the output gap to widen in the first half of 2015. Inflation is also expected to fall below the bank’s target during the coming year, before moving higher again in 2016.