Forex Today: Global yield rally batters yen

What you need to know on Wednesday 19 April:

The Japanese yen was battered on Tuesday as further upside in global bond yields exerted further upwards pressure on G10/Japan interest rate differentials, dampening the low-yielding safe-haven currency’s investment appeal. Needless to say, the yen was the worst-performing major G10 currency, with USD/JPY surging nearly 1.4% to the upper 128.00s, its highest levels since early 2002.

EUR/JPY, GBP/JPY and other major G10/JPY pairs also unsurprisingly saw sharp upside, with the former two rallying 1.5% and 1.3% respectively to multi-year highs in the upper-138.00s and mid-167.00s. Japanese politicians have been jawboning more and more in recent days about the negative impact of yen weakness, but until the BoJ budges from its ultra-dovish policy stance, the yen remains vulnerable to further losses. Remarks from BoJ Governor Haruhiko Kuroda earlier in the week suggested that the bank won’t be looking to change its policy stance any time soon.

Strength in USD/JPY helped lift the US Dollar Index above 101.00 for the first time since March 2020. Fed speak remained in the spotlight, with traders digesting the latest commentary from hawkish Fed’s James Bullard and more neutral Fed’s Charles Evans ahead of pivotal remarks from Fed Chair Jerome Powell later in the week.

EUR/USD and GBP/USD both traded broadly flat just under the 1.0800 level and near 1.3000 respectively, despite the return of normal European flows on the reopen of markets there after Monday’s closures for Easter holidays. Relevant fundamental updates, as well as updates relating to the Russo-Ukraine war, were few and far between on Tuesday, making for slow trading conditions.

Decent US housing data and in line with expected Canadian Housing Starts figures didn’t give the buck or loonie much to go off of. USD/CAD was modestly supported, however, by a sharp pullback in crude oil prices, reversing an earlier dip under 1.2600 to end the day closer to 1.2620. Ahead, loonie traders are bracing for the release of March Canadian Consumer Price Inflation figures on Wednesday.

Finally, the antipodes didn’t see too much excitement. The Aussie is a modest G10 outperformer in wake of Tuesday’s slightly hawkish RBA minutes release - the bank noted high expected inflationary pressures and said recent developments suggest an earlier rate lift-off. AUD/USD rebounded about 0.4% to the 0.7375 area, having bounced at its 50-Day Moving Average in the 0.7340s. NZD/USD, meanwhile, traded flat in the 0.6730 area and remained close to the more than one-month lows it struck on Monday just above 0.6700.

Focus during the upcoming Asia Pacific session will centre on the ongoing Covid-19 outbreak and lockdowns in China, as well as the Chinese fiscal and monetary response to the new disruptions to its economy.