THAILAND: Goldman Sachs Stays Positive On THB
The US bank stays constructive on THB and expect bond and swap curves to flatten further, see below for more details.
"In Thailand, the House Assembly will likely convene (again) on 22 August to vote for a Prime Minister (PM). If successful (in selecting a PM), then we think this will improve clarity on the political outlook, which should be positive for THB risk assets. The BoT has indicated that they are close to reaching the neutral rate (without elaborating where that is). We read the BoT as mildly hawkish, as they would like to build policy space. Our base case is that the BoT are done hiking rates (as inflation is very low), but we highlight that risks are skewed to the hawkish side. We expect the current account to flip back into surplus this year (after two years of deficits). Despite a few false dawns on the political outlook, we think the formation of a new government is drawing closer. As such, we remain bullish THB vs. NJA peers and maintain our 12M USD/THB forecast of 32.0. Given the monetary policy backdrop, manageable bond supply and strong local demand from insurance companies, we think the balance of risk is for the bond and swap curves to flatten even further."
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RBA: Governor Lowe Identifies Productivity As The “Bigger Challenge”
In unscripted comments at the G20 finance minister and central banking meeting in India, RBA Governor Lowe warned that boosting productivity growth was a “bigger challenge” for the world than the near-term problem of elevated inflation, according to The Australian. He observed that there wasn’t a lack of good ideas but a lack of political will.
- Lowe said that “the political challenge is to get these good ideas that are already out there, through our political systems.” He also observed that “many good ideas have their root in multi-national co-operation”.
- Without a pickup in productivity growth “we are condemning our citizens to slower growth in real wages, smaller public services and an increased tension on income distribution.”
- Lowe has warned recently that without an improvement in productivity growth, which fell 4.5% y/y in Q1 in Australia, then wage growth at 4% is a problem for the inflation outlook.
AUD: AUD/EUR: Supported Ahead Of Cycle Lows
AUD/EUR was pressured yesterday, after weaker than forecast Chinese GDP weighed on the pair, before support was seen ahead of cycle lows.
- The pair is little changed in early dealing, last printing at €0.6065/70, and fell ~0.4% on Monday.
- On the downside bears look to break below the low from June 28 (€0.6041) which opens up year to date lows at €0.5959. €0.5867 the 50% retracement of the 2020-2022 Bull leg is the next downside support level.
- Bulls first look to break the 20-Day EMA (€0.6112) from here they can target €0.6227 the high from 21 June.
Fig 1: AUD/EUR Daily Spot, EMAs
Source: MNI/Bloomberg
AUSSIE BONDS: Muted Open, RBA Minutes Due
ACGBs are little changed (YM flat & XM flat) after US tsy yields declined 2-3bp out to the 20-year with the 2-year closing at 4.74% with the 10-year at 3.81%. The 2/10 curve was little changed around -93bp. It was a muted NY session on Monday with US tsys respecting recent ranges with little follow-through on moves. Light volumes observed.
- Cash ACGBs opened flat to 1bp richer with the AU-US 10-year yield differential at +17bp.
- Swap rates are 1bp lower.
- Bills pricing is -1 to +1.
- RBA dated OIS pricing opened little changed across meetings with a 38% chance attached to a 25bp hike in August. Terminal rate expectations sit at 4.44% (Feb’24).
- (AFR) Despite the steep rise in borrowing costs, house prices appear to again be pushing higher. According to CoreLogic, national home values rose 2.8 per cent in the June quarter, the highest quarterly rise since January 2022. (See link)
- Today sees the release of the RBA Minutes for the July meeting, with the market looking for more details about the July pause.
- Later today sees June US retail sales and industrial production, May US business inventories, and the July NAHB housing market index.
