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Published On: Wed, Sep 10th, 2014

The USD/JPY extends its rally despite slightly decreasing Japanese machinery orders

The USD/JPY momentum pushed the pair further north to more than 6-year highs; the US dollar retained its strength against other major currencies owing to bets the Fed would hike rates earlier than previously anticipated.

The USD/JPY momentum pushed the pair further north; the USD retained its strength owing to bets the Fed would hike rates earlier than previously anticipated

The USD/JPY was quoted at 106.14, 0.07 percent lower, on the spot market following a Machine Orders report for the month of July. The latter showed machinery demand had risen by 3.5 percent, below analysts’ expectations and below the previous month’s figure. The Corporate Goods Price Index was seen gaining 3.9 percent in August, for a 17-th month in a row.

The yen firmness was short-term, and the USD/JPY shrugged off its losses in the hours to follow. As of 6:03 UK time, the pair was trading at 106.48, a 0.25 gain on a daily basis.

Bank of Japan Deputy Governor Kikuo Iwata speech apparently lent some support for the USD/JPY. The former stated that consumer prices are expected to rise moderately together with wages. Iwata said the output gap should improve given expectations of the Japanese economy growing “at a pace above its potential”. The BOJ Deputy Governor promised that all the necessary would be done on the monetary policy front, in order for the 2% inflation target to be achieved as soon as possible.

Without important news releases in Australia, the AUD/USD recent rally came to a halt. As of 6:16 am UK time, the pair is trading at 0.9160, a 0.45 percent loss for the day. The AUD/USD broke through the solid 0.9200 support, which was the recent lower bound of its trading range. It also breached its 200-day Moving Average, currently located at 0.9183, signalling further losses.

The US dollar was firm against most major currencies last night as markets favor a Fed move sooner than previously anticipated. The Dollar Index was almost flat at 84.22. The euro was hovering close to more than a year lows due to the growing divergence between the Fed and the ECB monetary policy paths.

Subdued financial markets volatility was recently addressed by Fed Chair Janet Yellen. In her remarks she pointed out that the low levels of volatility in a number of asset markets suggests that investors underestimate the possibility of enduring losses with volatility picking up. She went further by explaining that the markets’ calm is probably stemming from investors’ certainty about the future interest rates path, as the latter are used in discounting future cash flows, which makes rates directly related to the prices of stocks and bonds.

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