KRW: Spot USD/KRW Lower Post BoK, Rhee Says FX Discussions With US Tsy Continue
Spot USD/KRW was last near 1387/88, up around 0.50% in won terms, and the best performer in the EM Asia FX space. The pair is back close to the 50-day EMA support point, just under 1387.
- As expected the BoK kept rates on hold but maintained an easing bias in terms of the outlook. One board member wanted to cut rates, but Governor Rhee stated that the central bank needs to work in tandem with government policy to curb housing market momentum (he said expects additional govt policies on this front).
- Still, 5 out of 6 board members see scope for lower rates in the 3 months, with Rhee stating that the easing bias could remain intact through the first half of next year. The BoK forecasts weren't shifted greatly, with Rhee noting positives and negatives around the growth backdrop.
- Rhee also indicated that FX discussions with the US Treasury are on-going. As these headlines crossed got to session lows of 1386.4. Rhee added that most intervention in the past 1-2 yrs has been aimed at limiting won weakness, and: *RHEE: US MAY SEE KOREA'S FX INTERVENTION EFFORTS AS DESIRABLE" (via BBG).
- Such a backdrop may place an upside cap on USD/KRW spot, where recent highs above 1400 have drawn selling interest. Still, over the medium term broader macro trends will dictate and Rhee also noted the difficulty of managing the won given strong offshore investment flow trends.
- Today's move lower in USD/KRW is also bring the pair more into line with US-SK 1y1y rate differentials, see the chart below.
Fig 1: USD/KRW Spot Versus US-SK 1y1y Rate Differential
Source: Bloomberg Finance L.P./MNI
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US-CHINA: Trump Pushes Back On Speculation For Meeting With China's Xi
US President Trump posted via Truth Social that he is not seeking a a summit with China President Xi Jinping. The full post is below. This comes as US and China officials are set to meet for the second day of trade talks in Stockholm. A potential meeting between Trump and XI was reportedly set to be part of the agenda of the talks.
- "The Fake News is reporting that I am SEEKING a “Summit” with President Xi of China. This is not correct, I am not SEEKING anything! I may go to China, but it would only be at the invitation of President Xi, which has been extended. Otherwise, no interest! Thank you for your attention to this matter."
- Also noted the FT reported overnight: " The US has frozen restrictions on technology exports to China to avoid hurting trade talks with Beijing and help President Donald Trump secure a meeting with President Xi Jinping this year, the FT reports, citing people familiar with the matter." (via BBG).
- Rtrs headlines have also just crossed that Nvidia has placed fresh orders with TSMC for 300k in H20 chips, as demand from China is very strong, but that the US Commerce Department is yet to approve the company's export licenses for the H20.
AUSTRALIA: NZ Q2 Core CPI Suggests Small Moderation In Australia
With Australia’s Q2 CPI data released on Wednesday, it is worth looking at NZ developments given the high correlation between the two countries’ inflation rates. With Australia’s headline CPI impacted by government electricity rebates, it is hard to infer any trends. However, the trimmed mean has a 3-year rolling correlation of around 90% with the RBNZ’s measure of core. The two were in line in Q1 at 2.9% and NZ’s Q2 outcome of 2.8% suggests that Australia’s may also post a small decline. This result would be above the RBA’s May Q2 forecast of 2.6% though.
Australia vs NZ underlying inflation y/y%
- NZ-Australia services CPIs also have a correlation of around 90% and in Q2 NZ’s picked up to 4.7% y/y from 4.2%. Q2 seasonally sees an increase in the quarterly rate in services but it would have to be above 1.0% q/q in Australia for the annual rate also to pick up. However, NZ non-tradeables inflation moderated 0.3pp to 3.7% y/y in Q2.
- Both services and non-tradeables in NZ continue to run above Australia’s, as has been the case since mid-2023.
- RBA Governor Bullock noted that in the monthly CPI data durable goods prices were a bit higher. NZ’s goods inflation was steady at 1.4% y/y in Q2. The 3-year rolling correlation between Aus-NZ goods inflation has picked up recently to around 95%.
Australia-NZ core CPI y/y% correlations
Source: MNI - Market News/LSEG/RBNZ
