INDONESIA: Q2 Current Account Deficit Hits Record Wide, Q2 Capital Inflows Up

• China bonds are seeing a modest rally today with yields down around -0.5bps.  
• The 10-Yr edged lower to 1.73% as the demand dynamic for bonds remains strong given the reopening of the 10-Yr due May 15, 2036.  
• Expectations are high for this reopening following the most recent 10-year benchmark government bond auction hit a massive, all-time record bid-to-cover ratio of 7.23.
• 10-Yr bond futures are up +.05 today at 109.225 to move back above the 20-day EMA of 109.14.  
• Looking ahead there is a further 10-Yr reopening scheduled for Friday alongside a 5-Yr CNY130bn auction.  

The NZD/USD had a range today of 0.5823-0.5834 in the Asia-Pac session; it is currently trading around 0.5825. The NZD has again stalled just above the 0.5850 area as the broader US dollar reacted to the move in US yields. On the day, I suspect dips will likely continue to be supported in the short-term with the first support back toward 0.5790-0.5810, the price action over the next couple of days will be important. I have been skewed toward fading this move but I am cognisant of it potentially challenging higher than I expect as a market still positioned quite short is squeezed and liquidity is at a premium. 

• (Bloomberg) - “Kiwi Dollar Priced for Perfection as Rate Bets Turn More Hawkish. The kiwi’s remarkable rally has pushed interest-rate expectations toward an increasingly demanding destination, leaving the currency with little room for disappointment.”
• “Four or even five hikes over the next year would be an increasingly high hurdle for policymakers to clear, given the economy is burdened by a deeply negative output gap. Without clearer evidence that activity is turning higher structurally, the current policy path embedded in markets risks proving overly optimistic.”
• Options : Closest significant option expiries for NY cut, based on DTCC data:  0.5840(NZD380m). Upcoming Close Strikes : none - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 39 Points

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

The USD/JPY range today has been 163.03-163.22 in the Asia-Pac session, it is currently trading around 163.15. The pair succumbed to the pressure and surged above 163.00 making new highs for the year and hitting levels not seen since the mid 1980’s. The move higher in US yields and Oil just adding to the Yen's current headwinds. This price action is really poor and the MOF is going to have to start initiating its new strategy of “surprise interventions” if it has any chance of slowing the move down. Jaw-Boning like we saw today is just not going to cut it. Cross-Yen had a very limited reaction to the recent pullback in risk sentiment and is again outperforming as risk rebounds, showing the Carry-Trade is alive and well. On the day, the first support is toward 162.50 and then the 161.00-161.50 area. The market is still sitting short Yen as the underlying story regarding Yen weakness remains the same and core positions are reflecting that. I suspect only a faster rate hiking cycle will probably suffice to break this perpetual loop which the current administration does not seem in favour of. The market will be watching closely when two hawks, Takata and Tamura, finish their terms this month. If their replacements are reflationists similar to Asada the board flipping Dovish would not bode well for the Yen.

• "KIHARA: REFRAIN FROM COMMENTING ON FX MARKET SITUATION. WILL RESPOND APPROPRIATELY TO FX AS NEEDED" - BBG
• "JAPAN FINMIN KATAYAMA: WON'T COMMENT ON SPECIFIC FOREX LEVELS. WILL TAKE APPROPRIATE ACTION ON FOREX AS NEEDED" - RTRS
• MNI - Export, Imports Above Forecasts, Trade Deficit Widest Since 2023: For June, both Japan exports and imports grew more than expected. The slightly larger import beat and pick up from May's pace saw wider trade deficit outcomes. The headline trade deficit was -406.9bn, against a -120bn forecast and we were also slightly wider versus the May outcome. The trade deficit, in seasonally adjusted terms, printed at -881.9bn, versus -598.1bn forecast and -221.1bn prior. This balance is at fresh wides back to the first half of 2023.
• Options : Close significant option expiries for NY cut, based on DTCC data: 157.50($1.43b), 162.50($952m), 163.00($1.58b). Upcoming Close Strikes : 160.00($1.57b July 24), 162.00($1.57b July 24), 162.00($2.17b July 27) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 54 Points

Fig 1 : USD/JPY Spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P