G10 FX Week Ahead: Clearing The Blocks

JPY: 110 Under Pressure



Week ahead bias Range next week 1 month target



Neutral 108.50 - 110.00 108.00

USD/JPY continues to surprise, nearly pressing 110 even without the assistance of higher bond yields. Japanese purchases of foreign bonds have picked up in March, although we would have assumed that most of these purchases would have been FX hedged.

The week ahead in Japan sees February retail sales and industrial production, plus the Q1 Tankan business survey. The weaker JPY must be providing some windfall gains to Japanese exporters and a further improvement in the Tankan should not be a surprise.  

GBP: Simply Looking Better than EUR



Week ahead bias Range next week 1 month target



Neutral 1.3700 - 1.3900 1.4400

The data flow in the UK was mixed: January unemployment dropped more than expected, while inflation inched lower (to 0.4%) in February against market consensus. On the inflation side, our UK economist sees the drop as a temporary blip in the march to the 2% level later this year.

Overall, with UK-EU tensions over vaccine supplies easing and vaccinations in the UK keeping a good pace, markets continue to see the UK Government’s timeline to re-open the economy as realistic, and therefore sterling is retaining some better resilience than other G10 currencies to USD appreciation.

We can expect that same resilience to last next week, where the data calendar in the UK is quite light. On the Bank of England side, there are two scheduled speakers (Saunders and Tenreyro) next week, although any material deviation from the Bank’s recent rhetoric appears unlikely at this stage.

Concerns about a worsening virus situation and the slower vaccination progress in the eurozone may widen the UK-EU gap in terms of recovery expectations, and we could see EUR/GBP test the key 0.8500 support in the coming days.

AUD: Bond Rally Takes Some Pressure Off the RBA



Week ahead bias Range next week 1 month target



Neutral 0.7530 - 0.7725 0.7700

AUD/USD moved back above 0.7600 recently, but is down by 1.5% on the week following a combination of choppy risk sentiment and rallying yields. On the latter, the Reserve Bank of Australia has surely welcomed the 10 bps fall in Australian 10-year yield this week, which has brought the differential with 10-year Treasuries below 4 bps, the lowest since early February – and a material drop from the 50 bps peak seen in late February.

This is keeping the need for more RBA interventions in the bond market low for the moment, but we don’t exclude more will be needed in the coming weeks if global bond yields start to move up again.

The data calendar next week is very light in Australia, with only trade figures from February worth highlighting. Focus should remain on the oil market and it’s spill-over on other commodities. Iron ore actually enjoyed a corrective rally to US$167/metric ton this week, helped by better activity outlook for China.

Other threads to follow are – although the market impact has arguably been subdued so far – the EU-Australia dispute over vaccine supplies to Papua New Guinea and the floods in Sydney and NSW that may slow vaccination efforts. That said, we expect external factors to remain the primary driver of AUD next week.

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Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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