ASIA FX: Mixed Session, CNH Supported By Equities, THB Rebounds, MYR Lags
Asian currencies have traded in a mixed fashion in the first part of Friday trade. In NEA trends are mixed, with CNH firmer but KRW down slightly. In SEA, Thailand markets have returned, with THB rebounding, while in other parts of the region the USD has been modestly firmer. Early focus was on USD gains against the majors, as US President Trump threatened Canada with 35% tariffs, but spill over to USD/Asia pairs was fairly limited.
- USD/CNH has tested sub 7.1700 in the first part of Friday trade. We continue to see the USD/CNY fixing trend lower, which is biasing the pair lower and/or driving outperformance on key crosses. Mostly notable this past week has been CNH/JPY, with the pair break above 20.51 today. The better global equity tone, with China markets rallying strongly today (amid multiple supports) is aiding gains in this cross. For USD/CNH we are still within recent ranges.
- Spot USD/KRW has drifted a little higher last around the 1375 level, so still sub recent highs. USD/JPY gains have likely spilled over to the won, while the onshore equity rally has cooled. Early July trade data pointed to positive export growth trends.
- USD/TWD is little changed, last near 29.20, while USD/HKD is still near 7.8500, despite further HKMA intervention and rising Hibor rates.
- USD/THB has fallen by around 0.40%, putting the pair last near 32.55. This is still up from recent lows close to 32.30.
- USD/MYR has firmed, last close to 4.2580, maintaining a recent uptrend. May IP in Malaysia was below expectations at +0.35y/y, versus +2.1% forecast and 2.7% prior.
- USD/IDR is little changed, holding close to 16220 in latest dealings.
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BUND TECHS: (U5) Trend Outlook Remains Bullish
- RES 4: 132.00 Round number resistance
- RES 3: 131.85 High Apr 22 and the bull trigger
- RES 2: 131.50 High May 7
- RES 1: 131.47 High Jun 5
- PRICE: 130.82 @ 05:34 BST Jun 11
- SUP 1: 130.12 Jun 5 low
- SUP 2: 129.30/13 Low May 22 / 15 and key short-term support
- SUP 3: 128.97 Low May 14
- SUP 4: 128.40 Low Apr 9
The latest pullback in Bund futures still appears corrective - for now - and the trend condition remains bullish. Moving average studies are in a bull-mode position highlighting a dominant uptrend. A resumption of gains would signal scope for a climb towards 131.85, the Apr 22 high and a key resistance. Key short-term support to watch is 128.97, the May 14 low. First support lies at 130.12, the Jun 5 low.
AUSSIE BONDS: Cheaper Ahead of US CPI, AU-US 10Y Diff Near Bottom Of Range
ACGBs (YM -5.0 & XM -2.0) are weaker after trading in narrow ranges on a local-data-light session.
- Cash US tsys are little changed in today's Asia-Pac session ahead of today's CPI data. Analyst unrounded estimates see core CPI inflation accelerating mildly to 0.27% M/M (median, 0.28% average) in May after 0.24% M/M in April. (See link)
- Focus has also been on US-China trade talks, with headlines from London crossing earlier. The market reaction has been fairly muted, with the main outcome being agreement to move forward with what was agreed at the Geneva talks in May (although both US and Chinese leaders need to sign off on implementation).
- Cash ACGBs are 2-4bps cheaper with a flatter curve and the AU-US 10-year yield differential at -20bps.
- The bills strip has cheapened, with pricing -2 to -3.
- RBA-dated OIS pricing is firmer across meetings today. A 25bp rate cut in July is given a 79% probability, with a cumulative 72bps of easing priced by year-end.
- Tomorrow, the local calendar will be empty apart from a speech from RBA Jacobs, Head of Domestic Markets Department – Australia’s Bond Market in a Volatile World – at the Australian Government Fixed Income Forum, Tokyo.
JAPAN: MOF Says July Bond Buyback Speculation Is Unrealistic - BBG
Headlines have crossed via BBG from Japan's MOF that speculation around July bond buybacks is unrealistic.
- BBG notes: " Buying back of super-long government bonds from July is unrealistic and not envisioned, an official from Japan’s Ministry of Finance said in an email to Bloomberg News."
- This follows recent speculation around various shifts/efforts that the Japan authorities may enact to calm longer dated yields. This could involve shifts in BoJ taper plans, along with potential changes to government bond issuance plans (with a focus on more shorter dated issuance).
- Note Rtrs reported yesterday: "Japan is considering buying back some super-long government bonds issued in the past at low interest rates, two sources with direct knowledge of the plan said on Monday, underscoring its focus on reining in any abrupt rises in bond yields." See this link.
- Market reaction has been limited in terms of JGB futures. June futures are still close to session highs, last near 139.30, while USD/JPY is relatively steady, near 145.00.
