FX Daily Strategy: Asia, Aug 28
Tokyo CPI Unlikely to Sway BoJ
But USD/JPY Could Have a Limited Test Upwards
Canada Q2 GDP Quarterly rebound seen largely on net exports
The August Tokyo CPI will be the last one to be cushioned by energy stimulus. The data should still point towards all item below 2%, core-core CPI has a slim chance to break above 2% but the domestic demand maybe a drag of feet. The BoJ will likely shrug off the data point even if they consider a September hike.
Yet, with strong pricing of a September hike, market participants could be easily disappointed with a softer read. Most importantly, the lack of confirmation from Ueda may keep soft hands out of JPY longs.
On the chart, there is little change as prices extend consolidation above the 159.00 level following bounce from the 158.00 low. Daily studies remains mixed and suggest further ranging action below resistance at the 159.78, 18 August high. Break here, if seen, will open up room for extension to strong resistance at the 160.00/160.50 area. Meanwhile, support is raised to the 159.00 level where break will open up room for pullback to the 158.50/158.00 area. Would take break of the latter to return focus to the downside to retrace strong bounce from the 155.22 low towards support at the 157.00 level and 156.65 low of 7 August.
We expect Q3 Canadian GDP to increase by 3.3% annualized, in line with what monthly data is implying, assuming the preliminary estimate for a 0.2% increase in June is accurate and gains of 0.3% in May and 0.6% in April are unrevised. This will mark a return to growth after two straight negative quarters. The GDP gain is however likely to be fully explained by a rebound in net exports after a negative Q1, which would leave doubts over how sustainable the bounce in GDP will be, doubts that were visible in the Bank of Canada minutes from the July 15 meeting.
Monthly trade data shows exports up by 5.4% (not annualized) in real terms in Q2 with imports up by 1.4%. While there will be some offset from a deterioration in the services balance, we still expect exports to rise by 18.3% annualized, outpacing a 6.3% increase in imports and adding 3.3% to GDP. This would not quite fully erase a similar negative in Q1.