Yen's intervention bounce fades, underscoring market defiance against dollar-selling effort
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The yen gave back nearly half the gains from the joint U.S.-Japan currency intervention, trading around 159 per dollar on Tuesday, as speculators moved to rebuild short positions, casting doubt on the efficacy of the rare dollar-selling operation. The Reserve Bank of Australia is set to hold rates at its meeting, with policymakers expected to stress inflation risks even as the economy shows signs of softening.
Intervention Fade and Speculator Positioning
The yen hit a 40-year low of 163.99 per dollar last month before the U.S. and Japan stepped in with dollar sales that temporarily lifted it to a three-month high of 155.20. By Tuesday, it had slipped back to 158.93, erasing nearly half those gains and leaving traders poised for further slides. Speculators slashed their net short yen position by $8.865 billion to $3.604 billion in the week to Aug. 4, according to U.S. regulatory data, but analysts warn the rebuilding of bearish bets is already underway. Marc Chandler of Bannockburn Capital Markets said the market 'is challenging the resolve of Japanese and U.S. officials' amid thin holiday trading in Tokyo.
Central Bank Decisions
The Reserve Bank of Australia is expected to leave its cash rate unchanged at its Tuesday meeting, though it may signal readiness to hike again if inflation remains elevated. The Australian dollar traded at an eight-week high of $0.7057, with Commonwealth Bank strategist Carol Kong noting 'softer inflation and housing market weakness give the RBA scope to wait.' Meanwhile, traders price a roughly 50% chance of a Bank of Japan rate hike, with the path complicated by political pressure to support bond markets and a potential rebound in bond yields. ING strategists warned that a move back to 160 yen per dollar this month 'remains a tangible risk,' even if the BOJ acts in September.
What's Next
The RBA decision is the immediate focus, with markets scrutinizing its statement for any shift in tone on future rate moves. Attention then turns to U.S. inflation data on Wednesday, which could sway Federal Reserve expectations and, consequently, the yen’s trajectory, leaving intervention watch on high alert.
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Yen's intervention bounce fades, underscoring market defiance against dollar-selling effort
