Yen down, Australian firm benefits from improving sentiment ahead of central bank meetings

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By Hideyuki Sano

TOKYO (Reuters) – The yen was held back as the risk-sensitive Australian dollar held steady on Wednesday thanks to a strong commodities market and a positive risk mood amid bullish US economic data and earnings from optimistic companies.

The Japanese currency has also been hampered by expectations that the Bank of Japan (BOJ) will signal a firm commitment to keep its monetary settings accommodative this week, even as many other central banks around the world seek to tighten policies to stem inflation.

The dollar held at 114.20 after rising 0.37% in the previous session, remaining close to its four-year high of 114.695 reached a week ago.

“After the pandemic, the dollar became the go-to currency par excellence, but recently the beta (sensitivity) of the yen to stock prices has become stronger than that of the dollar,” said Shinichiro Kadota, senior currency strategist at Barclays .

Wall Street shares closed at a record high Tuesday on strong corporate earnings. U.S. economic data released on Tuesday was also bullish, with consumer confidence unexpectedly rising and new home sales rising more than expected.

The BOJ is expected to largely downgrade its economic assessment in its policy announcement on Thursday, with markets betting on no rate hike for the foreseeable future.

The European Central Bank, which is holding its own policy meeting on Thursday, is also expected to be slow to tighten policy, keeping the euro in check.

The euro was at $ 1.1594, after falling 0.4% so far this week.

On the flip side, a rally in risky assets such as stocks and commodities supported the Australian dollar and other commodity-linked currencies.

The Australian dollar held steady at $ 0.7506 after three straight days of gains ahead of Wednesday’s domestic inflation data.

The emerging market currency index hit its highest level in nearly six weeks.

The Canadian dollar, however, lost some of its strength as traders worried that the Bank of Canada would temper investor expectations when the policy was announced later today.

The BoC could become the first central bank of a G7 country to end the relaunch of its bond buying program during the pandemic amid high inflation and a labor market recovery.

Markets expect a C $ 1 billion reduction in its bond purchase, while fully anticipating a rate hike by April of next year.

“While the market is probably right to expect another C $ 1 billion reduction in the pace of asset purchases, the most sensitive issue is the policy rate, and here we think it could be almost. impossible for the Bank of Canada to validate market prices. about when to take off, ”said Michael Hsueh, research analyst at Deutsche Bank in New York City, in a report.

Among emerging countries where inflation is increasing, the Brazilian central bank is also expected to raise interest rates by 100 basis points to 7.25% on Wednesday.

Some analysts believe that the Brazilian real could risk a further decline unless Banco Central do Brasil raises rates more than market forecasts.

In crypto, bitcoin fell almost 5% to $ 60,114 while ether fell 2.4% to $ 4,120.

(Reporting by Hideyuki Sano; Editing by Shri Navaratnam)


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