Japan Talks Down Yen, AUD Eyes GDP

Jawboning from Japans Minister of Finance weighed on the yen on Tuesday while the Australian dollar as the top gainer in a session that saw some sizable moves but little overall change. The commodity bloc were the best performers. The focus remains on Australia in the upcoming session with the release of Q1 GDP data. Long GBPUSD & USDCAD are among the Intermarket Insights in progress. See more below.

USD/JPY climbed to 78.95 from 78.25 after Fin Min Azumi said that a G7 conference call confirmed an agreement to counter extreme FX moves. The strong market reaction to the comments was a bit puzzling because every G7 communique contains a pledge to combat disorderly movements in exchange rates.

Still, Japanese officials have now uttered nearly every threat in their playbook so a quick 150 pip drop in USD/JPY would likely prompt intervention. Another telltale sign to watch out for is a statement that MOF staff are ready to act. That would likely be the final warning before intervention.

In US fundamental news, the ISM non-manufacturing index rose 53.7 compared to 53.4 expected. It was only the second upside surprise in economic data in the past week, with 20+ reports below expectations.

In Europe, scattered reports continue to spill out about Spanish bank recapitalization and a European banking union. The EU is expected to outline a blueprint for banking reform on Wednesday.

Other fundamental news came from Canada where the BOC held rates at 1.00% and retained a hawkish bias. Some market watchers expected a neutral or dovish statement but officials retained a rate-hike bias while noting it was dependant on continued economic expansion.

The Asia-Pacific calendar is quiet until 0130 GMT when Australia releases Q1 GDP. The consensus is for a healthy 0.6% q/q rise following the +0.4% reading in Q42011. The impact will be slightly muted because the RBA has already lowered rates. Expect the market reaction on a negative miss to be slightly larger than an upside surprise because the market mode is to sell AUD rallies.

Long GBPUSD & USDCAD, short EURUSD, AUDUSD and gold are among the Intermarket Insights in progress. For direct access to today's Intermarket Insights, click here: http://ashraflaidi.com/products/sub01/access/?a=643 ; Non Subscribers can join here: http://ashraflaidi.com/products/sub01/

-AB