FOREX: Asia FX Wrap - BBDXY Drifts Lower On Waller Comments

The Hang Seng was one of the worst regional performers today, weighing heavy on other major bourses.  As escalating Middle East tensions dominate this week's Federal Reserve meeting has markets sidelined to see if the FED will alter the direction for US interest rates.  

The Middle East tensions are driving oil prices higher raising concerns as to the return of inflation as a catalyst for interest rates in the region.  

• China's Hang Seng is down -1.15% and is down -2.75% over the last five days of trading.  This dragged the CSI 300 with it, albeit marginally, down -0.07%, the Shanghai Comp was softer by -0.20% and the Shenzhen Comp down -0.36%
• The KOSPI's good run continued and is up +0.45% today and approaching a +2.00% gain over the last week.
• The FTSE Malay KLCI barely moved today and is where it started the trading day despite the BNM governor's positive comments about the economy.  
• The Jakarta Composite fell -0.54%, taking back yesterday's gains.  
• The FTSE Straits Times in Singapore fell -0.33% and the PSEi in the Philippines fell -0.10%
• The NIFTY 50 is up +0.20% so far today, looking to recover yesterday's losses of -0.37%

ACGBs (YM +1.0 & XM +1.0) sit marginally stronger on a subdued pre-FOMC session. 

• Cash US tsys are slightly cheaper ahead of today's FOMC Decision including a Summary of Economic Projections (Dots). The June FOMC meeting communications should reflect an increasingly patient attitude from May and certainly since March's projections.
• Cash ACGBs are 1bp richer with the AU-US 10-year yield differential at -16bps.
• The bills strip little changed with pricing flat to +2.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in July is given a 83% probability, with a cumulative 76bps of easing priced by year-end (based on an effective cash rate of 3.84%).
• May jobs data are released tomorrow and Bloomberg consensus is expecting labour market tightness to continue, one of the reasons the RBA remains cautious regarding the monetary policy outlook.
• Consensus is forecasting a 21.2k increase in new jobs, close to the 3-month average of 23k, with the unemployment rate steady at 4.1%. In May the RBA projected 4.2% in Q2 and employment growth of 2.1% y/y. New jobs rose a stronger-than-expected 89k and 2.7% y/y in April.  
• The AOFM plans to sell A$800mn of the 1.00% 21 December 2030 bond on Friday.

Gold prices range traded on Tuesday and that trend has continued in today’s APAC session as markets await the Fed decision later. They fell to $3370.75/oz but have rebounded to $3399.0 to be up 0.3% today supported by the softer US dollar (USD BBDXY -0.1%). Treasury yields are little changed. Bullion continues to be dependent on the Middle East too with any escalation driving safe-haven flows.

• Medium-term trend signals are bullish with moving average studies in a bull mode. Initial resistance is at $3451.3, 16 June high, while support is at $3340.2, 20-day EMA.
• Prospects of the US assisting Israel in its attacks on Iran have increased. President Trump has demanded that Iran surrender but said that they won’t assassinate the Ayatollah “for now” but his patience with Iran is “wearing thin”.
• Silver is 0.4% higher at $37.267 today to be up 13% this month. The intraday high of $37.282 is also the high for June. A bull wave persists and has broken above a number of resistance levels opening $37.478, March 2012 high.
• The Fed is widely expected to leave rates unchanged but the dot plot will be monitored closely (see MNI Fed Preview). Inflation and jobs data have yet to show an impact from tariffs but some activity/survey data have slowed. The Fed is likely to want more time to evaluate the impact and now oil prices are up over 20% this month, it will also monitor its impact on inflation if sustained. A prolonged hold would likely weigh on gold prices, depending on other events.
• There are also a number of ECB speakers including de Guindos, Elderson, Lane, Machado and Donnery and BoC’s Macklem appears. In terms of data, US May housing starts/permits, jobless claims, euro area May CPI and UK May CPI are released.