PHP: Peso Gains After Inflation Concerns Push BSP To First Rate Hike Since 2018
May-20 01:54
The peso trades on a firmer footing after the BSP raised interest rates for the first time since 2018 on Thursday and flagged a sense of concern with rising inflationary pressures.
- Bangko Sentral ng Pilipinas raised its benchmark policy rate by 25bp on Thursday, in line with expectations, after Governor Diokno hinted at potential for such a move the day before it was announced. The central bank noted that economic conditions allow it to "continue rolling back its pandemic-induced interventions, consistent with its exit strategy from monetary accommodation." Furthermore, policymakers were cognisant that the risks to the inflation outlook are skewed to the upside. Accordingly, the Monetary Board expects average inflation "to breach the upper end of the 2-4 percent target range" this year, with second-round effects already manifesting in higher minimum-wage adjustments in some regions and rising inflation expectations.
- Speaking after the Monetary Board meeting, Governor Diokno noted that the central bank stands ready to provide dollar liquidity in the case of tighter financial market conditions and exchange rate pressures, but the flexible exchange rate remains the first line of defence.
- Spot USD/PHP trades -0.180 at PHP52.280. Bears look for a dip through May 12 low/50-DMA at PHP52.200/52.199, which would expose Apr 28 low of PHP51.970. Conversely, the key layer of resistance remains at PHP52.500.
- USD/PHP 1-month NDF last seen -0.010 at PHP52.420. Bears look for a fall through May 11 low of PHP52.260, while bulls keep an eye on May 9 high of PHP53.250.
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CNH: PBOC Uses Daily Fixing To Knock Yuan On Its Head
Apr-20 01:51
Offshore yuan has taken a hit after the PBOC set the yuan reference rate at a weaker than expected level, while leaving its Loan Prime Rates unchanged.
- The People's Bank set the mid-point of permitted USD/CNY trading range at CNY6.3996, 101 pips above the average sell-side estimate.
- However, Chinese policymakers kept 1-Year and 5-Year Loan Prime Rates unchanged at 3.70% and 4.60% respectively, even as Bloomberg consensus looked for 5bp cuts to both rates.
- Note that the renewed outbreak of Covid-19 in China, which pushed several industrial hubs/metropolises into lockdowns, continues to spook investors, as the authorities struggle to contain the spread of infections.
- USD/CNY crossed above its 200-DMA after the fixing for the first time since late August. USD/CNH staged a similar move yesterday, its first foray above the 200-DMA since October.
- When this is being typed, USD/CNH changes hands +101 pips at CNH6.4293, after printing a session high of CNH6.4390. Bulls look for a further rally towards the CNH6.4500 mark, followed by Oct 12 high of CNH6.4644. Bears would be pleased by a pullback under yesterday's low of CNH6.3777.
JAPAN DATA: Japan Mar Exports +14.7% Y/Y; 13th Monthly Rise
Apr-20 01:35
- Japan's exports rose for 13th straight month by 14.7% y/y in March, following the 19.1% y/y growth marked in February.
- Imports grew by 31.2% y/y in March, decelerating from the 34.0% y/y increase last month, marking the 14 monthly rise.
- Trade balance in February was a deficit of Y412.4 billion, shrinking from the previous Y668.2 billion deficit.
- Exports to the European Union and the United States rose 16.8% y/y and 23.8% y/y respectively, and to China increased 2.9% y/y.
- Imports from the European Union increased 16.8% y/y, and from the United States and China increased by 18.4.% y/y and 19.0% y/y respectively.
US TSYS: Away From Worst Levels, Still Comfortably Lower
Apr-20 01:27
The aforementioned PBoC inaction has dragged TYM2 away from worst levels, with the contract last -0-11 at 118-24+, 0-05 off its session trough. Cash Tsys are 1.0-2.5bp cheaper across the curve, with the 7- to 20-Year sector leading the weakness.
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