FOREX: USD/JPY Back Above 150.00, As Ueda Warns On Yields, Steady Elsewhere
Feb-21 04:34
Yen volatility has been the main focus in G10 FX markets in the first part of Friday trade. The USD BBDXY index was last near 1283.3, little changed for the session. Outside of a yen fall, the rest of the G10 has moved less than 0.1% against the USD at this stage. The USD is still holding lower for the third straight week.
- USD/JPY was offered in the first part of the session, the pair getting to fresh lows of 149.29, which came not long after the Jan nationwide CPI data. This was close to expectations, but showed further positive y/y momentum. Still, services inflation slowed to 1.4%y/y from 1.6% In Dec, so this took away some of the hawkish impetus from the print.
- USD/JPY rebounded back through 150.00 as BoJ Governor Ueda appeared before parliament, where he stated the central bank would buy bonds if yields rose sharply. This sent JGB yields lower and weighed on yen. The Governor has reiterated this afternoon though if the economy evolves as expected further rate hikes will be delivered.
- After reaching highs of 150.74, yen is back at 150.20/25 in latest dealings. The 7 low of 150.93 may not act as an upside resistance point, while on the downside, the recent break sub the Dec 9 low from last year at 149.69 wasn't sustained.
- Elsewhere, AUD/USD been supported sub 0.6400. We are seeing strong gains for HK and China equities, although spill over hasn't been that strong so far. Earlier RBA Governor Bullock reiterated that the central bank will be cautious around further rate cuts. NZD/USD is a touch higher, last close to 0.5770.
- EUR/USD is holding just above 1.0500.
- US yields are tracking lower, the 10yr back to a 4.48% handle.
- Looking ahead, we have UK retail sales, along with preliminary PMI prints. EU PMIs are also due, along with those in the US. Fed speaks see Jefferson and Daly on tap.
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AUSSIE BONDS: Cheaper & At Cheaps, Local Calendar Light Tomorrow
Jan-22 04:29
ACGBs (YM -6.0 & XM -6.0) are weaker and near Sydney session lows.
- Outside of the previously outlined Leading Index, there hasn't been much by way of domestic drivers to flag.
- Cash US tsys are ~1bp cheaper in today’s Asia-Pac session after yesterday’s bull-flattener. Wednesday's US data calendar remains light, with MBA mortgage data and the December Leading Index - more focus will be on the $13B 20Y Bond reopening auction, as well as a Fox interview with Pres Trump airing after Wednesday's cash close.
- Cash ACGBs are 5-6bps cheaper with the AU-US 10-year yield differential at -13bps.
- Swap rates are 4-5bps higher, with EFPs slightly tighter.
- The bills strip has bear-steepened, with pricing -2 to -5.
- A Bloomberg News survey of 48 economists forecast the cash rate to be unchanged at 4.35% at the end of Q1 25 and 4.10% by the end of Q2 25.
- RBA-dated OIS pricing is flat to 4bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (109%), with the probability of a February cut at 69% (based on an effective cash rate of 4.34%).
- Tomorrow, the local calendar is empty.
GOLD: Gold’s Rally Continues as Tariffs for China Considered
Jan-22 04:25
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- Gold rallied throughout the the day to reach new highs for the year.
- Bullion opened at US2,708.21, rising throughout the trading day to $2,750.99.
- Gold typically likes either lower rates or a weaker USD and with Trump seemingly pulling back from tariffs on China for now, the USD was weaker against most Asian currencies.
- Gold also exhibits safe-haven status in times of volatility which no doubt will be in the days and weeks ahead as policies are announced.
- Trump has indicated that tariffs levelled at Mexico and Canada could come into place as early as February, and that he is considering a ‘universal tariff on all imports into the US’.
- The threat of tariffs, proposed increase in spending and trade wars sees investors having concern as to the pathway for inflation and hence interest rates.
- Whilst the geo-politics will have input into the short run impact for gold, the longer term direction for rates will be the most significant for gold.
- Some of the largest gold ETFs were up over 3% yesterday in what was one of the biggest moves year to date.
US TSY FLOWS: BLOCK: FV Likely Buyer
Jan-22 04:19
- +2,238 FVH5 at 106-05+, post time 15:07:25, DV01 $93k. Contract last trades -01¾ at 106-05+ just off session lows of 106-04+
