HONG KONG: Persistent HIBOR Could Contain HKD Funding, Limit APAC FX Ahead
- 3m HIBOR was set higher again overnight at 1.76%, up over 40bps from last week's lows as USD/HKD spot continues to press against the weak-side of the trading band (7.8455 printed overnight). The recovery in rates follows the sharp swing from the strong-side (7.75) to the weak side (7.85) of the band in May, and as HKMA's liquidity injections of ~HKD 130bln in early May begin to be re-absorbed. There remains considerable room for local rates to rise further to erase the May decline, however.
- We flagged last week that a building IPO pipeline would support tighter interbank liquidity and higher local rates, relieving pressure on the weak-side of the USD/HKD band. This week's reports that Hong Kong are looking to issue HKD infra and green bonds (as well as CNH, EUR and USD) in the near future add to this theme. Similarly, Barclays estimate dividend payments of $36bln this quarter - almost double that seen in Q2 of recent years, while HSBC estimate near $13bln in dividend payments were made last week alone, further supporting S/T HKD demand.
- As such, HKD's recent status as a local funding currency may be reversing. This poses unwind risks to recent rallies in TWD, KRW & IDR as the downtick in HIBOR proves short-lived, and the attractiveness of APAC FX carry trades fades. Higher local rates may also deter firms from hedging USD exposure via cheaper HKD in the near future, denting a recent driver of the upside in implied vol.
Figure 1: 3m HIBOR/SOFR Spread hit biggest discount on record through recent APAC FX vol
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USDCAD TECHS: Hits Bear Trigger, New Cycle Low
- RES 4: 1.4415 High Apr 1
- RES 3: 1.4296 High Apr 7
- RES 2: 1.4087 50-day EMA
- RES 1: 1.3906/3935 High Apr 17 / 20-day EMA
- PRICE: 1.3793 @ 17:00 BST May 2
- SUP 1: 1.3760 Low Apr 21 and the bear trigger
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
The trend set-up in USDCAD deteriorated further Friday, with prices slipping through the bear trigger to narrow the gap with next support. The fresh cycle low reinforces the bear cycle and signals scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear mode position, highlighting a dominant downtrend. First resistance to watch is 1.3943, the 20-day EMA.
AUDUSD TECHS: Consolidation Phase
- RES 4: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6528 High Nov 29 ‘24
- RES 2: 0.6471 High Dec 9 ‘24
- RES 1: 0.6470 High May 2
- PRICE: 0.6445 @ 16:59 BST May 2
- SUP 1: 0.6344/6316 Low Apr 24 / 50-day EMA
- SUP 2: 0.6181 Low Apr 11
- SUP 3: 0.6116 Low Apr 10
- SUP 4: 0.5915 Low Apr 9 and key support
AUDUSD remains inside a consolidation phase, having traded either side of the 0.6400 level for 10 consecutive sessions. The underlying trend remains bullish and the pair is trading close to recent highs. Price has recently breached a key resistance at 0.6409, the Dec 9 ‘24 high. This breach reinforces bullish conditions and signals scope for a continuation higher near-term. Sights are on 0.6471 next, the Dec 9 2024 high. Initial key support to monitor is 0.6316, the 50-day EMA. A clear break of this EMA would be a concern for bulls.
US TSYS: Rates Retreat, Sentiment Improved Though Trade Risk Remains
- Treasuries look to finish near late Friday session lows after trading firmer on the open, higher than expected Nonfarm payrolls at 177k (sa, cons 138k) of which private contributed 167k (sa, cons 125k) triggered the early reversal.
- However, two-month revisions of -58k offset the 39k beat for nonfarm payrolls, with a similar story for private (a 42k surprise vs -48k two-month revision).
- Stocks are back near four week highs - pre-"Liberation Day" levels as hopes of some trade deal being made improved sentiment.
- The Wall Street Journal reports that "Beijing is considering ways to address the Trump administration’s gripes over China’s role in the fentanyl trade... potentially offering an off-ramp from hostilities to allow for trade talks to start." The Journal notes that "discussions remain fluid" and China "would like to see some softening of stance from President Trump".
- Currently, the Jun'25 10Y contract trades -20 at 111-07.5 vs 111-02 low -- initial technical support (50-dma) followed by 110-16.5/109-08 (Low Apr 22 / 11 and the bear trigger). Curves bear flattened, 2s10s -3.480 at 48.002, 5s30s -4.911 at 86.807.
