ASIA FX: Seasonality Less Positive For Asian Currencies As We Progress Into Feb
Jan-29 04:01
January to date has seen Asian currencies outperform relative to historical seasonality. The chart below plots average Asia Dollar performance (ASIADOLR index on BBG) by calendar month (last 10 years as a sample period). On average the Asian currency index has risen close to 0.40% against the dollar. In January 2025 to date we are up around 0.90%. Lack of fresh tariff action from the returning Trump administration has certainly been a positive.
- Historically, positive January Asia FX seasonality is likely to reflect a number of factors: whether it be repatriation of earnings by China corporates ahead of LNY, or fresh capital being put to work in bond and equity markets (a factor that has aided Indonesia in the past), or positive Thailand tourism flows etc.
- As we progress into February though, seasonality has, historically, been less positive. On average the Asia dollar index loses close to 0.60%. After May, it is the second worst month of the year from a seasonality standpoint. No doubt some of the positives typically associated with January related FX flows, slow as we progress into February.
Fig 1: Asia Dollar Seasonality Typically A Headwind in Feb (last 10yrs Average Monthly Performance)
Source: MNI - Market News/Bloomberg
- In the context Feb 2025, tariff concerns will be front and center from an investor standpoint. Trump has mentioned the Feb 1 date as a potential launch point for some tariffs against Canada, Mexico and also China. If Feb 1 comes and goes without any tariff action we may see a further relief rally in regional FX, albeit with a less supportive seasonality backdrop.
- This backdrop is in part tied to the tight inverse relationship the Asia dollar index has displayed with the US 10yr real yield, see the second chart below (where the US real 10yr is inverted on the chart). Outside of tariffs (and its impact on US yields), the very elevated US real yield backdrop remains a headwind to Asia FX, with continuing uncertainty around the extent of further Fed easing in 2025.
Fig 2: Asia Dollar Index Versus US Real 10yr Yield (Inverted)
Source: MNI - Market News/Bloomberg
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US TSYS: Cash Bonds Little Changed, 10YY At Higher Since May
Dec-30 04:00
TYH5 is 108-13, -0-01 from NY closing levels.
- Cash US tsys are dealing little changed across benchmarks on a newsflow-light Asia-Pac session.
- The US tsy 10Y yield is hovering around to 4.625% - the highest since late May'24.
- Markets will be closed on Wednesday for the New Year's Day holiday; otherwise, they will have full sessions for the balance of the week. Data includes MNI PMI and Pending Home Sales on Monday, FHFA housing data on Tuesday, weekly claims and construction spending on Thursday, and ISMs on Friday.
BONDS: NZGBS: Bear-Steepener As US Tsys Pressure On A Light Data Day
Dec-30 03:51
NZGBs closed showing a bear-steepener, with benchmark yields flat to 7bps higher.
- Cash US tsys are little changed in today’s Asia-Pac session after Friday’s heavy session. US data this week includes MNI PMI and Pending Home Sales on Monday, FHFA housing data on Tuesday, Weekly Claims and Construction Spending on Thursday, and ISMs on Friday.
- The NZ-US 10-year yield differential closed 2bps higher at -14bps after hitting -18bps early, its lowest level since late 2020. However, the NZ-AU 10-year did finish 3bps lower at flat.
- The local calendar was empty today and will remain so until the release of CoreLogic Home Values on January 2.
- Swap rates closed 5-6bps higher.
- RBNZ dated OIS pricing closed flat to 3bps firmer across meetings, with late 2025 leading. 54bps of easing is priced for February, with a cumulative 122bps by November 2025.
GOLD: Small Rebound After Friday’s Decline
Dec-30 03:37
Gold is 0.2% higher in today’s Asia-Pac session, after closing 0.5% lower at $2621.40 on Friday.
- Gold’s decline at the end of a subdued holiday-shortened trading week came after mixed US jobless data. The data did little to alter bets on the outlook for Federal Reserve interest-rate cuts. Lower rates are typically positive for gold, which doesn’t pay interest.
- Fed rate cuts into early 2025 gained slightly by Friday’s close vs. morning levels (*) as follows: Jan'25 steady at -2.7bp, Mar'25 -13.3bp (-13.1bp), May'25 -18.5bp (-17.7bp), Jun'25 -26.5bp (-25.7bp).
- According to MNI’s technicals team, the move down undermined the recent bullish theme. A resumption of weakness would signal scope for an extension towards the key support at $2536.9, the Nov 14 low.
- Moving average studies are in a bull mode position highlighting a medium-term uptrend and this suggests that the latest sell-off is likely a correction. Initial pivot resistance is $2640.0, the 20-day EMA. A breach of this EMA would be positive for bulls.
