CNY: ING On Differences In FX Markets Between Now and 2018/19 Period
Apr-29 22:10
The bank highlights the differences in FX markets between current and the first trade conflict between US and China
ING: "There are some key differences between the first and second trade wars for the FX market.
- First and most importantly, the first trade war took place during a Federal Reserve rate hike cycle, which prompted a strong dollar environment; the dollar index rose around 12.2% between the 2018 low and the 2019 high. The second trade war takes place during a rate cut cycle, prompting a weaker dollar environment, and the dollar index is already down around 9.9% from this year’s high.
- Secondly, the first trade war featured relatively smaller tariff measures, which were partially absorbed by exporters and importers cutting margins, and generally was seen as more damaging to China than the US. Many Chinese firms were ill-prepared for a trade war, given the narrative at the time was that high levels of interdependence would prevent a trade war. The second trade war is of a much larger scale and threatens not just the economic outlook for China but also the US. Recession risks in the US generally look higher than in China this time around.
- Thirdly, the past few years have featured a significantly different backdrop for asset allocation and capital flows. In the past few years, we saw heavy capital inflows to the US after the rate hikes and the tech boom, while China has seen capital outflow pressure and a period of entrenched pessimism. The hot money available to flow out of each market is markedly different compared to 2018.
- Fourthly, China’s focus on currency stability has strengthened in recent years. Compared to 2018, more Chinese companies are also expanding outward direct investment, and the yuan’s role as a settlement currency has expanded. Maintaining consumer confidence and domestic purchasing power is also increasingly important given the pivot toward boosting domestic demand."
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NZD: Weaker Amid Equity Risk Off, NZD/JPY Back Under All Key EMAs
Mar-30 22:09
NZD/USD tracks near 0.5700 in early Monday dealings, down from end Friday levels in US trade. The Kiwi was the worst performer through Friday's session in the G10 space, losing just over 0.40% (with AUD down 0.29% and the second worst performer. Broader USD trends were mixed through with JPY outperforming, following by EUR, amid risk off in the equity space.
- Current levels for NZD are just under recent lows for the pair. We are just under the 50-day EMA (near 0.5720). A clean break sub 0.5700 could see lower March levels targeted. At the beginning of the month we tested sub 0.5600. On the topside, a recent cap has been the 100-day EMA at 0.5760.
- US equity markets were weaker across the board on Friday, the SPX down nearly 2%. US data showed rising consumer inflation expectations but softer sentiment. US yields were lower across the board, the US 10yr down 11bps to 4.25%.
- This aided yen outperformance, with NZD/JPY down 1.2% for Friday's session. The pair tracks lower in early Monday trade, last near 85.30, back under all key EMAs. The early tone for equity futures in the US is weaker, with jitters ahead of 'Liberation Day' tariffs remaining in focus.
- Locally, the RBNZ will conduct a review into bank capital requirements. (see this link).
- On the data calendar today we have the March ANZ activity and business confidence prints.
BONDS: NZGBS: Risk Off Ahead Of Liberation Day Drives Global Bonds Richer
Mar-30 22:08
In local morning trade, NZGBs are sharply richer after a strong risk-off tone gathered momentum going into the weekend ahead of this week's Trump Tariff "Liberation Day" rollout on April 2, not to mention Friday's employment data for March.
- Friday morning's drop in Consumer Sentiment and rising inflation expectations, as reported by the University of Michigan, added to concerns.
- The S&P closed 2% lower while US tsy yields dropped sharply across the curve. The US 10-year yield closed 11bps lower at 4.25%, having threatened to break out through the top side of the trading range, the previous day.
- While curves have scaled off steepest levels since early Jan'22 (short-end lagging), projected rate cuts through mid-2025 gained significantly on Friday vs. previous levels (*) as follows: May'25 at -5.2bp (-3.9bp), Jun'25 at -21.8bp (-17.2bp), Jul'25 at -36.5bp (-28.5bp), Sep'25 -52bp (-43.5bp).
- Swap rates are 4-7bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing is slightly softer across meetings. 24bps of easing is priced for April, with a cumulative 698bps by November 2025.
- Today, the local calendar will see ANZ Business Confidence later.
ASIA: Government Bond Issuance Today.
Mar-30 22:02
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- Philippines To Sell PHP 9.0Bln 364D Bills (PH0000060238)
- Bank of Korea to Sell KRW500bn 91-Day Bonds
- South Korea to Sell KRW1.8tn 2-Year Bonds
