Dollar Flat in Rangebound Trade Ahead of BOJ Meeting, Aussie up After RBA Decision

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The dollar was flat against the yen in Asia trade Tuesday, as investors remained reluctant to take lopsided positions before the Bank of Japan concludes its two-day policy meeting Wednesday. Meanwhile, the Australian dollar strengthened following the central bank’s decision to stand pat.

Around 0450 GMT, the greenback was at Y120.48, almost unchanged from Y120.46 late Monday in New York.

The U.S. currency was slightly stronger against the euro, which weakened to $1.1179 midday from $1.1190 late Monday. The common currency was at Y134.71 from Y134.79.

The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was down 0.05% at 88.48.

With stock market sentiment improving following agreement on the Trans-Pacific Partnership deal, the Nikkei Stock Average continued to gained momentum and was up 1.5% at midday. That prompted investors to exit the perceived safety of the yen, pushing up the dollar to as high as Y120.57.

The dollar also maintained its strength on expectations that the Bank of Japan will ease its monetary grip later this month, at its policy setting meetings scheduled on Oct. 6-7 and on Oct. 30.

Many Tokyo-based market participants don’t expect the central bank to take additional easing steps at least this week, on top of its main policy tool of 80-trillion-yen-a-year asset buying program. But recent dismal economic data suggests the economy has returned to recession over the summer, while several measures of inflation expectations show signs of flagging, raising more uncertainty about the BOJ’s action in the near future.

“Regardless of whether it takes action tomorrow or later, an additional easing (by the BOJ) looks inevitable,” given slow inflation, said Marito Ueda, director at FX Prime byGMO.

Moreover, the latest TPP deal accord, which is unpopular among some of main supporters of the ruling Liberal Democratic Party, may prompt Prime Minister Shinzo Abe to put together an additional economic stimulus partly in the form of monetary easing, said Mr. Ueda.

“Even assuming (BOJ’s) inaction tomorrow, (Gov. Haruhiko) Kuroda’s press conference will be closely monitored,” said Mr. Ueda.

In other currency pair trades, the Australian dollar rose, following the Australian central bank’s decision to keep intact its monetary policy.

As widely expected, the Reserve Bank of Australia left its cash rate target at a record low 2.0%, where it has remained since May. But RBA Gov. Glenn Stevens refrained from making dovish remarks, at a time when the market has already priced in two further rate cuts over the next year amid falling business investment and weak consumer confidence.

“In Australia, the available information suggests that moderate expansion in the economy continues,” said Mr. Stevens in a statement.

The Australian dollar rose to two-week highs of $0.7132 and Y85.91, respectively, midday from $0.7083 and Y85.33 late Monday.

 

 

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