ASIA FX: Fresh Trade Tensions Being Expressed Through KRW, TWD, Not CNH
In North East Asia FX the bias has been for weaker KRW and TWD spot trends, but CNH has been resilient. US authorities (including US President Trump) still left the door ajar for talks/trade deal ahead of the Nov 1 tariff deadline (announced late last Friday), which has supported broader risk appetite. However, this hasn't done much for spot KRW and TWD, while USD/CNH sits under 7.1400. Local equities for these markets are off sharply today. The 1 month USD/KRW and USD/TWD NDFS sit sub end Friday levels though.
- The USD/CNY fix, a fresh low back to Nov last year, helped cap USD/CNH. We also had stronger than expected Sep export data, despite a sharp fall in exports to the US. This, along with other anecdotes suggests that China is quite comfortable with its current trade/external backdrop, particularly in terms of the US. Spot USD/CNY is around 7.1310/15, which is quite resilient, in light of higher USD levels in recent weeks and Trump's tariff threat.
- Spot USD/KRW got to fresh highs 1432.45, but sits back at 1428 in latest dealings. Proximity to China coupled with export control concerns in the tech space (from both the US and China sides) has weighed on local equities, down 1.5%. Spot USD/KRW has been capped though, with the authorities noting they are on the watch for herd like behavior in FX markets, which can sometimes signal a stronger intervention stance. We are still some distance from potential support though (with late Sep highs around the 1413/14 region potentially eyed). The 1month NDF is lower, last near
- Spot USD/TWD is up to 30.65, around 0.40% weaker in TWD terms versus end Friday levels. This brings early Sep highs around 30.75 into view. The 1 month NDF is off 0.15% last at 30.63. So today's spot move is largely catch up to Friday's USD gain in the NDF space.
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
