TWD: Spot USD/TWD To Fresh Highs Amid Potential Dividend Outflows
Spot USD/TWD is just above 31.60 in latest dealings, which is fresh highs in the pair back to early May of last year (when we broke sharply lower from the 32.00 level). This is a +0.30% gain for the pair versus end Wednesday levels. The 1 month NDF is up by 0.40% to 31.65/70, which is still short of recent highs 31.77 (from mid Dec last year). 1 month points remain positive, (+.06) as markets continue to digest the recent regulatory shift around lifer FX hedging.
- More broadly, today's spot move keeps the uptrend in the pair intact. All key EMAs are trending north, with the 20-day around 31.45.
- Outside of potentially less lifer hedging of overseas investments, today is also a TSMC dividend paying day, which could be a further support given high foreign ownership of this stock.
- Local equities are modestly higher, but we did see chunky outflows from local stocks yesterday (nearly $900mn).
- We had CPI data print yesterday, close to expectations with headline at 1.31%y/y, while core was 1.83%. Note tomorrow Dec trade figures are due.
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JGBS AUCTION: Poll: 5-Year JGB Auction
*JAPAN 5Y GOVT BOND AUCTION MAY HAVE 99.81 LOWEST PRICE: POLL- BLOOMBERG
JGBS AUCTION: PREVIEW: 5-Year JGB Auction
The Japanese Ministry of Finance (MoF) will today sell Y2.4tn of 5-Year JGBs. MoF last sold 5-year debt on 13 November 2025, with the auction drawing cover of 3.3258x at an average yield of 1.245%, an average price of 100.25, a high yield of 1.251%, a low price of 100.22, with 31.6009% of bids allotted at the high yield.
- Last month’s 5-year bond auction delivered mixed demand signals. The low price was in line with expectations at 100.22, but the bid-to-cover ratio fell to 3.33x from 3.69x, while the tail narrowed to 0.03 from 0.06. The result was broadly consistent with the subdued demand seen at November’s 10-year auction.
- However, this month’s 10-year bond sale showed strong demand metrics, with the low price beating expectations at 98.50, according to the Bloomberg dealer poll. Moreover, the cover ratio increased to 3.5913x from 2.9734x, and the tail shortened to 0.04 from 0.13. This performance came with an outright 10-year yield at a fresh cycle high, around 20bps above the level in the prior month's auction.
- Results are due at 0335 GMT / 1235 JST.
RBA: Different Views Regarding Changes To December Tone
While the RBA is unanimously expected to leave rates at 3.6% today, there are a range of views regarding the tone of the statement and Governor Bullock’s press conference. Some believe there will be little change as the Board desires to keep its options open while waiting for more data, especially Q4 CPI on 28 January. Others think there will be a hawkish shift. The AUD OIS market has about a 50% chance of a hike priced in for May and 30bp by August but many believe it is too early to be considering tightening.
- Goldman Sachs expects a slight hawkish shift in the December statement given the strength of the data since last month and the November one was not as concerned as it could have been given Q3 CPI. It expects more worry over the “persistence of inflation” and for the RBA to sound more positive on activity.
- GS believes Bullock will be “increasingly circumspect around the RBA’s assessment of the restrictiveness of financial conditions given the recent data flow” and “will note greater evidence of inflationary pressure”.
- However, JP Morgan expects little change to the RBA’s sentiment and that the rise in October inflation to be downplayed as it “does not significantly threaten the RBA’s standing forecast for 4Q (3.5%oya)” given the “softer trajectory” implied by Q3 CPI details.
- In response to a likely question on hiking, JP Morgan expects Bullock to reiterate a commitment to returning inflation to the band and the Board’s data dependency.
- AMP expects the statement to be “more hawkish” but downplay the rise in the new monthly CPI in October. It also thinks that it is likely “to state that it will do whatever is necessary to bring inflation back to target, leaving the door wide open for a hike next year”.
