BUND TECHS: (H6) Bear Threat Still Present

MNI (AUSTRALIA): Moves in EM Asian currencies have generally been muted but the major development has been the continued strengthening in the yuan with onshore, which has a 2% trading band, falling to its lowest level against the dollar since May 2023. USDCNY is down 0.1% to 6.9973, close to the low. While this suggests that the PBoC is comfortable with a gradually strengthening currency, the break below 7.00 is likely to prompt further warnings not to take currency bets as stability is preferred. 

• Offshore USDCNH while flat has broken below 7.00 and is currently around 6.9934 after reaching a high of 7.0025 following the yuan fixing earlier which at 7.0348 was slightly higher than Monday’s 7.0331 signalling stabilisation after the recent downtrend.
• There has been little reaction from USDTWD to news reports of PLA drills (Bloomberg) around Taiwan this week, which the latter has protested about. It traded around 31.43 on Monday and remains around this level today after strengthening to 31.404 earlier.
• After strengthening on Monday, USDKRW is slightly higher today rising 0.1% to 1435.55 off the intraday high at 1437.30. Data released earlier showed a pickup in December business sentiment but a softer-than-expected rise in November IP.
• In terms of ASEAN, MYR is outperforming with USDMYR down 0.1% to 4.0550. USDTHB continues its reversal rising 0.2% to 31.52 and is now up 1.5% this week. The BoT would like to see the baht weaken as it is tightening financial conditions despite rate cuts.
• Later the December FOMC minutes are published. In terms of data, US 13 December ADP employment, December MNI Chicago PMI, December Dallas Fed services and October house price data print. Also preliminary December Spanish CPI data are released.

While the US dollar index has range traded today, Aussie has outperformed the G10 with the yen underperforming. AUDUSD is up 0.25% to 0.6710, close to the intraday high, supported by a widening of the AU-US yield differentials with the 10-year spread at a cycle high and a rebound in metal prices. Risk-averse Aussie hasn’t been pressured by lacklustre equity indices.

• Aussie is also outperforming kiwi driving AUDNZD to 1.1549. The pair is currently up 0.1% to 1.1545.
• USDJPY has moved in a fairly narrow range as there haven’t been any comments from Japanese officials or data releases. The pair fell to 155.93 early in the session before rising to 156.34. It is currently up 0.1% to 156.14.
• AUDJPY is 0.3% higher at 104.78 but still below the December 29 high of 105.216.
• In terms of European currencies, NOK and SEK have outperformed while EUR and GBP are little changed.
• Equities across the region are generally slightly weaker with the Nikkei down 0.1% but Hang Seng up 0.5% and S&P e-mini flat. Oil prices are steady with WTI at $58.08/bbl. Copper is up 2.5% and silver +3.3% while iron ore remains around $105.50-106/t.
• Later the December FOMC minutes are published. In terms of data, US 13 December ADP employment, December MNI Chicago PMI, December Dallas Fed services and October house price data print. Also preliminary December Spanish CPI data are released.

Oil prices have unwound earlier losses following EIA data showing US crude and product builds in the week to 19 December. It has found support during today’s APAC trading from ongoing geopolitical risks after Russia put into doubt a peace deal over an alleged attack on a presidential residence, the US announced a strike on docks in Venezuela as its blockade continues and said it would attack Iran again if it resumed its nuclear programme. All are oil exporters. 

• WTI has broken back above $58/bbl after it fell to $57.60. The benchmark is currently slightly lower at $58.05, close to the intraday peak of $58.15. The Brent February contract is flat at $61.92/bbl after reaching $61.99. Trading volumes in the contract are very light as it expires today.
• The EIA reported delayed US inventory data for the week ending 19 December. It showed a stock build of 0.4mn barrels which followed two consecutive drawdowns. Distillate inventories rose 0.2mn and gasoline 2.86mn, 6th straight weekly increases. Refinery utilization fell 0.2pp to 94.6%, 2.1pp higher than the same time in 2024.
• A Bloomberg survey showed that Saudi Arabia is expected to cut prices to Asia in February by up to 40c/bbl but may also leave them unchanged. January’s premium was reduced 40c/bbl. Ongoing OPEC and non-OPEC excess supply is pushing prices lower.
• Later the December FOMC minutes are published. In terms of data, US 13 December ADP employment, December MNI Chicago PMI, December Dallas Fed services and October house price data print. Also preliminary December Spanish CPI data are released.