ASIA FX: Mixed Trends, THB Rally Continues, IDR Falters
Asian currency trends are mixed, most notably with THB continuing to rally, whilst IDR has fallen sharply in the aftermath of popular Finance Minister Sri Indrawati no longer holding her position. In NEA TWD has continued to rally, but KRW has remained a laggard.
- USD/IDR got to highs of 16492 in the first part of trade, but sits back around 16430 currently. We ended Monday's session near 16300, so this is still an IDR loss of 0.75%. New FinMin Purbaya Yudhi Sadewa stated that "he will maintain fiscal discipline so that the national budget remains healthy and credible", adding that "The Ministry of Finance must understand the current conditions and current issues. We must not be naive and focus on small issues that hinder strategic policies." (via BBG). Local equities are down over 1.65%, while offshore investor flows will be watched to gauge sentiment to this news. BI was intervening earlier and likely helped curb USD/IDR moving through 16500.
- In contrast, USD/THB has slumped to fresh multi year lows, last at 31.635, up around 0.70% in THB terms. A smooth transition to the new PM is likely aiding sentiment, while gold prices have also risen to a fresh record high. The authorities and local economic bodies are concerned about FX gains, and the link to gold prices, but no fresh policy steps have been announced at this stage. Former leader Thaksin was also sentenced to 1yr jail, but market impact hasn't been evident.
- Spot USD/KRW sits little changed, the pair last near 1387. The won has underperformed the recent tech equity rebound and better inflow backdrop. Interestingly, earlier headlines crossed from Rtrs: "S.KOREA PRESIDENTIAL ADVISER: U.S. TRADE NEGOTIATIONS BEING DELAYED DUE TO ISSUE OF FX MARKET IMPACT FROM $350 BLN PACKAGE". This likely reflects that South Korean investment flows into the US w2ould boost USD/KRW higher.
- TWD is rallying though, aided by better equity inflows. USD/TWD spot was last under 30.40.
- Finally, USD/CNH is little changed, last under 7.1200.
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AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
