FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank
of Tokyo Mitsubishi UFJ notes that the Yen has weakened further in
the Asian session, most notably against the Australian dollar, with
AUD/JPY rising to its highest level since early September 2008
prior to Lehman Brother´s, highlighting the extent of the ongoing
improvement in global investor risk sentiment.
He notes that it has also coincided with the implied US equity
volatility (VIX) index falling to its lowest level since before the
financial crisis from mid 2007. He feels that investors are
increasingly confident that improving global growth and loose
global liquidity will ensure financial market stability ahead,
encouraging building demand for carry trades.
On a nominal trade weighted basis, the Australian Dollar has
reached new record highs, pushing it to even further into
overvalued territory. Hardman feels that the lack of high yielding
alternatives is ensuring that demand for AUD still remains robust
despite the RBA cutting rates, totalling 425 basis points since
early September 2008.
He writes, "The fresh catalyst for the ongoing improvement in
investor risk sentiment overnight was the release of the China
trade report for December. The report revealed both stronger than
expected export and import growth which accelerated to annual rates
of 14.1% and 6.0% respectively in December. For 2012 as a whole
China's exports grew by 8.3%Y/Y and imports by 5.3%Y/Y resulting in
an annual trade surplus of USD233 billion compared to USD158
billion in 2011.
Hardman notes that the economic slowdown in Europe has resulted in
the US replacing the EU as China's biggest export destination in
2012. The much stronger than expected export growth in December
highlights that the Chinese economy was likely rebounding more
strongly than expected heading into 2013. It has also been
speculated that Chinese inventory restocking has driven a strong
rebound in iron ore prices through December to date leaving prices
only around 17.0% below the peak from 2011 compared to a trough of
around 55.0% in September 2012.
He feels that higher prices, if sustained will help reduce the
negative terms of trade shock to Australia´s economy, reducing the
risk of a sharper correction lower for the Australian dollar ahead.
He finishes by writing, "The yen also remain on a weakening bias
with investors wary over the Japanese government's attempts to
weaken to it. Bloomberg have just reported that the government is
considering new measures using the special account in the foreign
exchange fund related to revenues generated from past intervention
to help stabilize the
currency market. No further details have been released as yet."