ASIA FX: Close To Unchanged Ahead Of Key US Events
Jun-12 2024 04:53
Asia currencies sit modestly stronger against the USD in the first part of Wednesday dealings. Overall moves are fairly muted though, ahead of key event risks (CPI/FOMC) in the US later on Wednesday. Still to come in the region is India CPI and IP data later.
- USD/CNH sits back under 7.2700 after finding selling interest above this figure level earlier. The USD/CNY fixing was steady, which lent some support to the yuan, although spot onshore gains have been limited. Onshore equites are down modestly, while inflation data still suggested a fairly benign domestic demand backdrop.
- 1 month USD/KRW has moved away from earlier highs near 1378 and is back around 1375, which is very much within recent ranges. Onshore equities are higher, which may be helping at the margins. Earlier data showed a steady unemployment rate, but loss of momentum in terms of jobs growth.
- It is close to very steady elsewhere. USD/IDR spot remains close to the 16300 level. Offshore investors sold local equities for the 14 straight session yesterday. The local JCI equity index is off over 6% from mid May highs, as local fiscal concerns/higher for longer Fed weigh.
- USD/THB is in the 36.70/75 region, also little changed for the session. Focus is on the upcoming BoT decision later today. No change is expected, although domestic political pressure continues to call for easier policy settings. Broader political uncertainties are also potentially curbing offshore investor appetite.
- USD/HKD spot sits just under 7.8100. We are under all the key EMAs, with the 20-day the nearest on the topside around 7.8130. In the past week, upside moves have not been sustained through this resistance point. The 200-day sits around 7.8210, while late May highs rested close to 7.8250. On the downside recent lows rest around 7.8080, so close to current spot levels. Earlier May lows sat at 7.7964. US -HK yield differentials sit off earlier YTD highs. On a 12 month basis we are back to +16bps, on a 3 month basis we are back at +64bps. A concerted dip in USD/HKD (sub the mid point of the peg band), may not materialize until yield differentials are notably lower or threatening a break sub 0bps.
- Elsewhere, USD/MYR is around 4.7170, while USD/SGD tracks close to 1.3530. Philippine markets are closed today.
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US TSYS: Treasuries Little Changed, Ranges Tight Ahead of US CPI Later This Week
May-13 2024 04:44
- Treasury futures ticked higher in early morning trading, before the long-end pared gains with weakness in JGBs contributing to the move. The 10Y contract is up (+ 01+) at 108-24, with intraday highs of 108-25+, while the 2Y contract is has held up throughout the day now trade near intraday highs, up ( + 00⅜) at 101-20.75.
- Looking at 10Y technicals, we still sit comfortably above initial support at 108-15+ (20-day EMA) a break here would open a retests of 107-04 (Apr 25 lows), while initial resistance is 109-06+/08+ (Channel top from Feb 1 high / 50-day EMA)
- Cash Treasury curve bull-steepened today, yields are about flat to 1bps lower, with the 2Y -0.9bps at 4.856%, the 10Y -0.2bp to 4.494% with the 2y10y -0.436 at -36.693.
- Looking across local rates markets: NZGBs yields are flat to 0.5bps lower, ACGBs are 1-2bps higher while JGBs are 1-4bps higher.
- The projected rate cut pricing cooled vs. late Thursday: June 2024 at -5% w/ cumulative rate cut -1.2bp (-2.5bp late Thu) at 5.307%, July'24 at -22% w/ cumulative at -6.7bp (-9bp late Thu) at 5.253%, Sep'24 cumulative -19.2bp vs. -22.4bp, Nov'24 cumulative -27.7bp -31.1bp, Dec'24 -40.9bp vs. -45bp.
- Looking Ahead: A slow start to the week, focus is on PPI and CPI on Tue/Wed
FOREX: USD/JPY Dips Supported Despite Lower BoJ Bond Buying, NZD Down With Inflation Expectations
May-13 2024 04:38
The USD BBDXY index sits just a touch higher for the session, last near 1254. We are down from earlier highs as the yen received some support after the BoJ reduced its bond buying pace modestly compared with late April.
- USD/JPY looked set to challenge the 156.00 level but the reduced pace of bond buying in the 5-10 tenor aided sentiment. The pair pulled back to 155.52, but didn't see any further follow through. We sit back at 155.75/80, unchanged for the session.
- Japan yields are marching higher, which is weighing on US-JP yield differentials, particularly at the back end of the curve. USD/JPY looks too high relative to such trends, see the chart below, although broader USD sentiment has mostly remained firmer today. Our Tokyo policy team notes the central bank could hasten the policy tightening process given the weak yen backdrop (see this link).
- USD/CNH has climbed above 7.2400 amid weaker data and fresh easing expectations. Higher US tariff prospects have weighed.
- NZD/USD is back close to 0.6000 post a further easing in Q2 inflation expectations. Some support was evident around this figure level though and the onshore rate impact has been limited. AUD/USD is also down, albeit outperforming NZD at the margins. The pair was last under 0.6600. We saw the AUD/NZD cross spike above 1.0990 on the weaker inflation expectations outcome but we have since lost momentum.
- Later the Fed’s Mester and Jefferson discuss central bank communications. In terms of data there is just US NY Fed 1-year inflation expectations for April. The Eurogroup meeting is being held and the ECB’s Buch is scheduled to speak. The focus this week will be on Wednesday’s US April CPI release.
Fig 1: USD/JPY & US-JP Yield Differentials
Source: MNI - Market News/Bloomberg
OIL: Prices Lower On Soft China Data, Reports This Week Should Clarify Outlook
May-13 2024 04:34
Oil prices are off today’s lows but are still down on the day. Brent is down 0.3% at $82.54 after falling to $82.26/bbl, while WTI is 0.2% lower at $78.08 after reaching $77.78. The latter has spent a reasonable amount of time below $78 today. With geopolitical tensions easing, markets are focused on fundamentals again and feel uncertain re the outlook. The USD index is slightly stronger.
- Data from China over the weekend have made oil markets wary re demand prospects. Lending data was disappointing and CPI inflation remained low.
- On the supply side, attention has shifted to the June 1 OPEC+ meeting where existing output cuts are expected to be extended into H2. Iraq said earlier that it wouldn’t agree to deeper cuts but then later confirmed it would abide with what OPEC+ decides. OPEC and the IEA release monthly reports this week with updated outlooks.
- Later the Fed’s Mester and Jefferson discuss central bank communications. In terms of data there is just US NY Fed 1-year inflation expectations for April. The Eurogroup meeting is being held and the ECB’s Buch is scheduled to speak. The focus this week will be on Wednesday’s US April CPI release.
