PHILIPPINES: Governor Medalla Says BSP Will Be More Active In FX Markets
Wires carry comments from BSP Governor Medalla who puts emphasis on FX developments, noting that USD strength requires Philippine policymakers to deliver larger rate hikes, even as they will not match the pace of Fed tightening on a point-by-point basis. The Governor says the BSP has other measures to reduce FX volatility and has been quite active in currency markets this week, with the intention to be even more active going forward.
- Bangko Sentral ng Pilipinas raised its key policy rate by 50bp Thursday in response to broadening price pressures, with the risks to the inflation outlook remain tilted toward the upside until 2023. The decision was in line with consensus forecast (and our prediction), with the policy rate topping its pre-pandemic level. It came on the heels of a hawkish FOMC outcome, which prompted USD/PHP to refresh record highs, albeit the statement did not mention either of these factors.
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JGBS: No Extension Of Super-Long End Weakness
JGB futures have stuck to a narrow range this far, last -5 after failing to trouble their overnight low in early Tokyo trade. Cash JGBs run little changed to 1bp richer across the curve, with the super-long end failing to extend on the weakness observed during the first couple of sessions of this week, even after U.S. Tsys twist steepened on Tuesday.
- There hasn’t been much in the way of market reaction to the previously fagged headlines re: fiscal policy.
- Participants remain on headline watch and await the breakdown of the latest round of BoJ Rinban operations, which will cross during the lunch hour.
AUSSIE BONDS: ACGB Nov-33 Supply Goes Well
The latest round of ACGB Nov-33 supply went smoothly, with the weighted average yield printing 0.82bp through prevailing mids (per Yieldbroker), while the cover ratio improved to 2.75x vs. 2.25x seen at the previous auction, aided by the downsizing of the amount on offer.
- The mix of the yield on offer and ACGBs operating off of cycle cheaps was sufficient to underpin demand at today’s auction, overcoming headwinds from impending event risk (i.e the upcoming Jackson Hole Symposium), even with international investors likely remaining sidelined owing to ongoing market volatility and uncertainty re: the degree of tightening that will be implemented by the RBA during the current cycle.
CNH: CNY Fixing On the Firmer Side
The USD/CNY fix printed at 6.8388, versus a market estimate of 6.8425.
- Today's fix was a downside surprise in USD/CNY terms of -37pips. This brings the 5-day rolling sum of the error term to -35pips, from -12 pips yesterday, so back to a modest lean against CNY depreciation pressures on this metric.
- Also note today’s outcome is the largest downside surprise, relative to expectations, since late May of this year.
- USD/CNH has dipped slightly following the fix. The pair is back below 6.8600, but remains very much within recent ranges. We got close to 6.8550, but some support is evident around this level (last at 6.8590).
- Recall earlier today the front page of the Securities Journal stated that the widening policy differential with the US was unlikely to hurt the yuan too much, and that a weaker local currency was good for export competitiveness.
- This, along with a stronger USD against the majors, helped push USD/CNH higher in the lead up to the fixing (session highs just shy of 6.8680).
