Global FX Update: Key Breaks Lower For Aussie Dollar And Yen

The Australian dollar has plunged through key three-year support at US$1.0078/AUD, following this week’s 25bps rate cut by the Reserve Bank of Australia (RBA). Given the country’s weakening terms of trade, declining economic activity, and the likelihood of further rate cuts in the pipeline, we maintain our outlook for the Aussie dollar to weaken further over the coming months, both against the greenback and Asian currencies in general.

Similarly, the Japanese yen recorded sharp weakness overnight, breaching the important JPY100/US$ level. This presages a move towards JPY110/US$, a break of which would even bring JPY125/US$ into focus. The sharp currency move suggests that foreign investors are becoming increasingly concerned about Japan’s fiscal situation, a key risk for the Japanese economy that we have highlighted repeatedly.

The ongoing rise in Japanese Government Bond (JGB) yields is a key indicator of these looming risks, and hence, we maintain our bearish call on 10-year JGB. Yields on the instrument have spiked to 0.67% this week, helping to confirm our view that the market has put in a structural top. We expect the 10-year yield to head higher over the coming months, and retest the six-year support level at around 0.90%.

This Week’s Trivia Question

The theme of our question last week was missing American soldiers in South East Asia. We asked, which long-running American TV series has a major character who turned out to be impersonating a US soldier lost in Vietnam? (Hint: the character was a school teacher.) The answer is Principal Seymour Skinner from The Simpsons, who was somewhat abruptly revealed in one episode to be an impostor named Armin Tamzarian.

Our question this week is as follows: Which famous British actor played Pakistan’s founding father in a late 1990s biopic, having earlier in his career played a James Bond villain, and subsequently in the 2000s powerful sorcerers (one of which was committed to capitalism) in two epic film sagas?