Yen crosses are driving a lot of the moves so far this morning in Asia. The BOJ Minutes were indicative of pull back in expectations for further easing
Ever since we've seen the yen crosses heavy.
EUR/JPY, but most notably AUD-and NZD/yen selling ... Driving AUD/USD and NZD/USD down.
We have seen very positive data from Australia, and nothing of real note from New Zealand. The economy is not the markets, though, right?
AUD and NZD have had a good run higher in past days, so profit taking is not surprising.
You will note I've marked this post into the 'education' category.
Two reasons:
1. The driver of this move is the yen (to be more precise, the driver of this move is lowered expectations of further Bank of Japan easing in response to the minutes). Note that AUD/JPY (for example) is made up of two currencies ... AUD and JPY. Obvious, right? But how many of us gloss over this basic point, and how many other basics are glossed over in the hurly burly of market movements?
Don't ignore the basics.
I'll go even further, and say that AUD/JPY is made up of four (that's right, 4) currency influences; AUD and JPY I have already mentioned, there is also AUD/USD and USD/JPY. That might seem illogical, but it isn't. There is a huge amount of liquidity in a pair like USD/JPY, so much that it will push yen crosses (like, for example AUD/JPY) away from where they perhaps "ought" (however yu'd like to define "ought") to be. This might sound irrational, and if it is market pricing will correct it, but this may very well take time, in the short term an "irrational' move can persist.
2. This is part of 1, and I've already mentioned it - the fundamental data picture for the AUD is more positive and yet the AUD/JPY is dropping. So here have what may very well be an one of those "irrational" moves, but in the short term (as of right now, for example) it is risky to stand in its way.
Have a think about a huge truck running a red light. You can stand in the intersection brandishing a copy of the traffic regulations, holding them up, waving them, at the oncoming truck. Or you can get out of the way and wait for the truck to stop in its own time.
