AUD: Asia Wrap - AUD/USD Probing Above 0.6650 Resistance, Can It Extend ?
The AUD/USD has had a range of 0.6656 - 0.6669 in the Asia- Pac session, it is currently trading around 0.6660, +0.05%. US stocks loved the CPI data and accelerated higher, while US yields most notably in the long-end continued lower. The AUD liked that combination and is looking to break above its pivotal 0.6650 resistance. Should the USD break and extend lower we could see the AUD gain momentum above 0.6650 and potentially target levels back towards 0.6900/0.7000. This price action suggests dips will be supported for now as we await confirmation of this potential break higher.
- Bloomberg - “An Aussie Rally May See Pensions Bolster FX Hedging: StanChart. The FX hedge ratio of foreign equities has edged up to 22.2% in Q2 from 20.6% in the prior period, “in line with our findings of limited evidence of increased FX hedging by foreign investors. This raises questions on what will lead Australia’s super funds to bolster their hedge ratios” given the Aussie’s positive correlation with risky assets is often cited as a key argument for a low hedge ratio; Chia says a medium-term rally by AUD/USD to around the 0.70 level may do that.”
- MNI INTERVIEW: Wages To Limit RBA Easing - Ex Research Chief. Trimmed-mean inflation is likely to remain near the top of the Reserve Bank of Australia’s 2-3% target if wages outpace its assumptions despite its recent productivity downgrade, the RBA’s former head of research told MNI, noting this would limit the degree of further easing.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6570(AUD383m), 0.6575(AUD377m). Upcoming Close Strikes : 0.6600(AUD449m Sept 16) - BBG
- CFTC Data last week shows Asset managers reduced their shorts for the first time in a while -66025(Last -78758), the Leveraged community though look to be rebuilding their own shorts after winding them down -11860(Last -6447).
- AUD/JPY - Asia-Pac range 98.01 - 98.27, Asia is trading around 98.25. The pair extended higher overnight, turning the focus back towards the 99.00/100.00 area. Dips back towards 96.50/97.00 should be expected to be supported now first up.
Fig 1: AUD/USD spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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ASIA STOCKS: Mostly A Sea Of Green Following US Lead, Aust Lags
Asian stocks markets are nearly higher across the board (with the ASX 200 and Philippines bourse the main outliers at this stage). After very strong gains in cash Tuesday trade, as speculation grew for Fed easing after the US CPI print), US futures are close to unchanged so far in Wednesday trade. Nevertheless, the positive spillover is evident for most parts of the region.
- Japan markets continue to rally, the NKY 225, up around +1.4% and above 43300, which is a fresh record high. The Topix is up +0.90%, while a poor 5yr debt auction has impacted sentiment at this stage. Positive spill over from US moves have been cited as a major driver so far today.
- In US trade on Tuesday, the SOX index rose nearly 3.0%. The Taiex, in Taiwan, was up in the first part of trade, tracking to a fresh record high, but is now back around flat. South Korea's Kospi is up 0.65%, back above the 3200 level. Foreign investors have been net buyers so far today (per NBUY on BBG), while onshore institutional and retail investors have been net sellers.
- China and Hong Kong markets are also higher. The CSI 300 last around +0.90%. Earlier we heard from the authorities who outlined plans on consumption subsidies (via subsidizing personal loans) to boost consumption. The HSI is up around +1.90%, with the tech sub index +2.35%.
- In South East Asia, Thailand markets have returned from a two-day break and are higher by 0.75%. We have the BoT later, which is expected to cut, albeit as a close call. Malaysia and Indonesia are both up over 1%, but the Philippines is lagging.
- In Australia, the ASX 200 is struggling, last down around 0.50%. Reported profit taking on CBA (after it posted results) is weighing on financial related stocks.
JGBS AUCTION: 5-Year Supply Shows Poor Metrics
Today’s 5-year JGB auction showed poor signals on demand. The low price came in below expectations of 99.72, and the bid-to-cover ratio declined to 2.9616x from 3.5411x. Meanwhile the tail widened slightly to 0.03 from 0.02.
- The result aligns with the poor demand signals seen at this month’s 10-year auction.
- With yields higher and the 2s/5s curve steeper than last month, today’s outcome represents a deterioration in overall demand conditions.
- In the aftermath, the 5-year sector is slightly cheaper in afternoon trading.
JGBS AUCTION: 5-Year JGB Auction Results
The Japanese Ministry Of Finance (MoF) sells ¥ 1,842.1bn 5-Year JGBs:
- Average Yield: 1.056% (prev. 0.989%)
- Average Price: 99.74 (prev. 100.05)
- High Yield: 1.062% (prev. 0.993%)
- Low price: 99.71 (prev. 100.03)
- % Allotted At High Yield: 67.7077% (prev. 6.9288%)
- Bid/Cover: 2.9616x (prev. 3.5411x)
