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Aussie down on weak inflation; Stimulus expectations push yen lower agai

Aussie down on weak inflation; Stimulus expectations push yen lower agai

Hopes of fiscal and monetary stimulus in Japan raised risk sentiment in Asian trading on Wednesday as the yen reversed yesterday’s gains to head lower again. Markets were boosted after Japan’s Prime Minister, Shinzo Abe, reportedly said today that the planned fiscal stimulus package will total more than 28 trillion yen. The figure is higher than earlier reports of 20 trillion yen and is said to include measures to counter the negative impact from Brexit.There were also rumours that Japan’s government is considering issuing new 50-year bonds. This drove the dollar to an intra-day high of 106.54 yen earlier in Asian trading but it eased to around 105.65 yen in late session after the country’s Finance Ministry denied it.The yen will likely remain volatile until Friday when the Bank of Japan will announce its latest monetary policy decision where it’s expected to loosen policy.The Australian dollar was also in focus today as the latest inflation figures were released for Australia. Annual inflation in the second quarter fell to 1.0% from 1.3% in the first quarter. The figure is below estimates of 1.1% and indicates that the Reserve Bank of Australia will likely reduce interest rates at its August meeting.There was a mixed response from the aussie however as the currency initially rose after the data to hit a one-week high of 0.7565 as some analysts were expecting a weaker figure, particularly the quarter-on-quarter rate which rose by 0.4% as forecast. This led to a slight lowering of the odds of an August rate cut but the aussie soon headed back down again to trade around 0.7470 versus the greenback in late Asian session.The US dollar was broadly firmer against a basket of currencies on Wednesday ahead of the Fed’s policy decision later in the day. A run of recent strong data out of the US has revived expectations that the Fed will resume its rate hike cycle later this year, with futures markets pricing in a 50% probability of a December hike.The euro was down from yesterday’s high of 1.1029 dollars and was trading just below the 1.10 level in late Asian session in the absence of any major data. The pound bounced back though from Tuesday’s lows below 1.31 dollars to climb to around 1.3130 as traders await second quarter GDP figures for the UK out later today.Crude oil prices were steadier after falling for a fourth straight day yesterday following a smaller-than-expected drawdown in crude stocks according to data from the American Petroleum Institute. WTI oil futures were last trading at $42.80 a barrel, not far from yesterday’s 3-month lows.Coming up later today, the first estimate of UK GDP for the second quarter is due, followed by durable goods orders and pending home sales out of the US. The focus will then move onto the FOMC statement at 18:00 GMT where investors will be watching for any clues on future Fed policy.

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