INR: INR Recovers Some Ground
The rupee is tracking slightly stronger following yesterday's holiday. USD/INR is down around 0.20% versus Monday's closing level (79.65), last at 79.45/50. Onshore equities are flat at this stage, compared with weakness elsewhere in the rest of the region. Equity outperformance has been a theme for a while, with the MSCI India index up around 16.50% from mid June lows, while the world index is up just under 11% over this period.
- INR is still 1.9% weaker versus the USD over this period (since mid-June), although the outperformance in equities may be starting to filter into firmer net equity flows.
- Last week saw net equity inflows of $1.86bn, the highest rate of weekly inflows since November last year.
- At the margin this is improving India's portfolio backdrop and helping ease INR pressure, although it is still a long way to go in terms of turning the terms of trade outlook around/trade deficit backdrop.
- Moreover, RBI resolve can still be tested with tonight's US CPI release. We aren't too far away from the high 79.00/low 80.00 region, which is likely to evoke smoothing intervention flows.
- Finally, there doesn't appear to be much impact on sentiment after the ruling BJP loss power in Bihar (see this link).
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AUDUSD TECHS: Trend Needle Still Points South
- RES 4: 0.7202 High Jun 9
- RES 3: 0.7138 High Jun 10
- RES 2: 0.0.7017/69 50-day EMA / High Jun 16 and a key resistance
- RES 1: 0.6910/6964 20-day EMA / High Jun 28
- PRICE: 0.6812 @ 06:57 BST Jul 11
- SUP 1: 0.6762 Low Jul 5 / 6
- SUP 2: 0.6759 50.0% retracement of the Mar ‘20 - Feb ‘ 21 bull cycle
- SUP 3: 0.6685 High Mar 9 2020
- SUP 4: 0.6647 0.764 proj of the Apr 5 - May 12 - Jun 3 price swing
AUDUSD remains closer to its recent lows and trend conditions remain bearish This follows the recent breach of 0.6829, May 12 low. The break strengthens bearish conditions and confirms a resumption of the downtrend that started February 2021. The move lower also maintains a broader bearish price sequence of lower lows and lower highs. Sights are on 0.6759 next, a Fibonacci retracement. Initial firm resistance is seen at 0.6964, high Jun 28.
AUD: A$ Threatening Another Test Of 0.6800
AUD/USD has remained under pressure for much of the afternoon session. We now sit at lows for the day at 0.6810 (-0.70%), eyeing another test of the 0.6800 level. We dipped briefly below this level on Friday evening. Below that is the 0.6760 region, where we have bounced off 4 times since the start of this month. On the topside, AUD/USD hasn't failed to generate much traction above 0.6850 in recent sessions.
- Commodity weakness remains a near term headwind. Iron ore has shed around $4 today, to be back around the $108/109/tonne levels. We aren't too far away from YTD lows. Onshore steel prices are also lower in China, while copper has lost over 2%.
- China Covid concerns are also weighing on equity sentiment, with US futures holding in the red (around -0.60-0.70% for the S&P500). AUD/JPY is still basically unchanged on the day, as USD/JPY has broken above 137.00. The pair last traded at 93.37, down from earlier highs close to 93.70.
- The A$ is generally down against most other crosses though. AUD/NZD is off by around -0.2% to be back at 1.1050, -30ticks for the session so far.
EUROZONE ISSUANCE: EGB Supply For W/C July 11, 2022 (2/2)
- Tomorrow, the Netherlands will offer E1.5-2.5bln of the on-the-run 10-year 0.50% Jul-32 DSL (ISIN: NL0015000RP1) on offer.
- Germany will also look to issue tomorrow with E5.5bln of the 0.20% Jun-24 Schatz (ISIN: DE0001104883) on offer.
- On Wednesday, Italy will look to sell up to E7.0bln of on-the-run 3/7/15-year BTPs. On offer will be E2.75-3.25bln of the 3-year 1.20% Aug-25 BTP (ISIN: IT0005493298), E2.0-2.5bln of the 7-year 2.80% Jun-29 BTP (ISIN: IT0005495731) and E1.00-1.25bln of the 15-year 3.25% Mar-38 BTP (ISIN: IT0005496770).
- Germany will return to the market on Wednesday to reopen the 0% Aug-52 Bund (ISIN: DE0001102572) for E1.5bln.
NET NOMINAL FLOWS: The week ahead sees redemptions of E28.7bln – largely from a E13.4bln 3-year BTP and E15.3bln from a formerly 10-year DSL. In addition there are E2.6bln of coupon payments due (of which Portugal has E1.4bln and Belgium has E0.6nln). Together with estimated gross issuance of E24.7bln, MNI estimates net nominal issuance of negative E6.7bln next week, a little closer to neutral than last week’s negative E9.1bln.
For a calendar of all announced EGB/EU/ESM/EFSF auctions see the MNI EZ/UK Bond Supply Calendar here.
