INR: USD/INR Again Down Sharply At The Open, IP & CPI Data
Spot USD/INR has once again shot lower at the open. The pair hit 86.42 in early dealings, after closing yesterday at 86.83. We have stabilized somewhat since, last back above 86.50. This still puts us sub the 20-day EMA (back closer to 86.60/70), although we couldn't sustain this support zone yesterday.
- News wires have reported likely strong intervention flows from the RBI to curb the recent UYSD/INR ascent. Some onshore sell-side estimates put the intervention form Mon-Tues in excess of $10bn (see this BBG link).
- We continue to see implied vols remain elevated, the 1 month last near 4.71%, which on a closing basis is highs back to 2023. Sentiment is likely to remain skittish until the market has a better sense of where the RBI may be more comfortable with FX levels.
- A CITI measure of the INR nominal effective exchange rate has bounced from recent lows, but only marginally.
- Portfolio flows remain skewed against INR in terms of both equity and bond outflows (albeit more so equities Feb to date). Local bourses are struggling, the Nifty last just above 23000, close to late Jan cycle lows.
- Note later on we have Dec IP printing. The market expects a 3.7% y/y outcome (form 5.2% prior). The CPI for Jan is also due, projected at 4.50%y/y (from 5.22% in Dec).
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GBP: Makes Fresh Lows In Asia Pac, Worst G10 Performer
The GBP remains on the backfoot, continuing to display volatility/weakness in the Asia Pac time zone. We were last 1.2145/50, off around 0.50%. This is fresh lows in the pair back to 2023.
- There doesn't appear to be a fresh catalyst for the move so far today, other than carry over weakness from the past week or so.
- In terms of downside targets the MNI technical team note the following:
- SUP 2: 1.2138 Low Nov 2 ‘23
SUP 3: 1.2087 0.764 proj of the Sep 26 - Nov 22 - Dec 6 price swing
SUP 4: 1.2037 Low Oct 4 ‘23 and a key support
CHINA DATA: Exports End 2024 Firmer, But Uncertain 2025 Outlook
China Dec trade figures were better than expected. Exports rose 10.7%y/y against a 7.5% forecast 6.7% prior. Since a trough in March last year, exports have mostly been on a modestly improving trend. 2025 remains much more uncertain though, given the returning Trump administration to the White House Imports also beat expectations, up 1.0%y/y (versus -1.0% forecast and -3.9% prior. The trade surplus was near $105bn, against a $100bn forecast.
- On the export side, shipments to the US rose 15.7%y/y, up from 7.3% in Nov. In levels terms, exports to the US were the highest since Q3 2022. Exports to Taiwan also bounced to 14.2% and were quite firm ASEAN economies (+19.2%) and the EU (+8.8%y/y).
- The trade surplus with the US eased a touch to $33.50bn, but is still elevated by recent standards.
- On the import side, commodity import volumes were mixed. Oil and coal were both down in Dec from a volume standpoint, coal was still a healthy +14.4%y/y, but oil was off 1.9%. Iron ore import volumes surged to over 112mln tones (up over 10% in m/m terms. Natural Gas volumes were also stronger in m/m terms and up close to 10%y/y.
Fig 1: China Export & Import Trade Trends Y/Y
Source: MNI - Market News/Bloomberg
BONDS: NZGBS: Heavy Session But Outperformance Vs. ACGBs
NZGBs closed at session cheaps, with benchmark yields 7bps higher. The NZGB 10-year did, however, outperform ACGBs, with the NZ-AU yield differential 6bps narrower.
- There have been no cash dealings in US tsys in today’s Asia-Pac session with Japan out for a holiday. TYH5 is, however, weaker at 107-07, -0-05+ from NY closing levels.
- Outside of the previously outlined building approvals and filled jobs data, there hasn't been much by way of domestic drivers to flag.
- Swap rates closed 7-8bps higher, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed 2-7bps firmer across meetings, with October leading. 49bps of easing is priced for February, with a cumulative 126bps by November 2025.
- Tomorrow, the local calendar will see the results of the NZIER Business Opinion Survey.
- On Thursday, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$175mn of the 3.50% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.
