SOUTH KOREA: Bonds Rally on Won Intervention

The BBDXY range overnight was 1224.68 - 1228.98, Asia is currently trading around 1227, +0.10%. The USD stalled toward 1230 heading into the weekend, this morning risk has opened strongly but with Japan out the reaction has been pretty muted. While the price remains above 1223/24 I would be skewed toward expressing a long, looking for a retest of the 1230-1240 area at some point. A move back through this support and are back in the 1210/15-1230/35 range.

• Nick Timiraos posted an excerpt from Bessent interview with CNBC in which he said, “Bessent: Inflation is up because of services, not goods. "If you look at the data, that imported goods, the inflation has actually been flat. Inflation is up because of the service economy and services. So that has nothing to do with tariffs."
• The BBDXY Average True Range for the last 10 Trading days: 369 Points

Fig 1: BBDXY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

The CFETS Pledged Repo Deposit Institutions 7 Day Weighted Average declined throughout the week last week as the PBOC injected over CNY 550bn of liquidity via the daily OMO.  With sizeable maturities ahead this week, and market sentiment finely balanced, markets will watch closely for liquidity movements as a useful catalyst for the broader market outlook. 

• The PBOC issued CNY338.7bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY283bn.
• Net liquidity injection CNY55.7bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.40%, from prior close of 1.44%.
• The China overnight interbank repo rate is at 1.30%, from the prior close of 1.30%.
• The China 7-day interbank repo rate is at 1.40%, from the prior close of 1.45%.

The USD/CNY fix moved lower, back to 7.0847, but this is above recent lows (7.0816). The fixing error was little changed at -289pips, versus -315pips on Friday. The fixing outcome shouldn't change broader USD/CNH trends, where the bias remains to fade upticks. Downside focus will rest on a renewed test under 7.1000, but we are little changed post today's fixing (last around 7.1075, up a touch on end Friday levels). Broader USD trends are a little firmer, with the BBDXY up close to 0.10%.