ASIA FX: TWD Gains, USD/HKD Supported As Hibor Rates Steady
In North East Asian FX markets, outside of TWD gains, trends have been fairly steady, consistent with the majors. The BBDXY index is little changed after making fresh cycle lows yesterday, with some consolidation possible as markets await the US NFP print tomorrow.
- USD/CNH was last near 7.1650, slightly up on end NY levels for the pair, but very much within recent ranges. The USD/CNY fixing edged higher but the error term returned to a negative bias. Onshore equities are little changed.
- Spot USD/KRW got to highs of 1363.85, not too far from the 20-day EMA resistance point. We now sit back though at 1359, little changed for the session. Earlier headwinds were from weaker equities (Kospi losses now under 1%), while broader USD trends were also a likely driver. Inflation figures for June showed core and headline CPI still close to the 2% target.
- Spot USD/TWD has bucked the USD consolidation trend seen elsewhere. This pair was last down close to 0.40% and threatening a re-test of 29.00. The equity inflow backdrop has been very strong in recent sessions. We would expect the central bank to remain vigilant though around a sharp break sub 29.00 in the pair, as this could impact life insurers in terms of their offshore holdings/hedging. The pace of TWD appreciation is still likely to managed.
- Spot USD/HKD is back close to 7.8500, after a brief dip in the first part of trade as the HKMA intervened to protect the top end of the peg band. The intervention hasn't seen a spike in Hibor rates though, hence the limited USD/HKD downside.
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BUND TECHS: (M5) Bullish Outlook
- RES 4: 132.56 High Feb 28 and a key resistance
- RES 3: 132.03 High Apr 7 and the bull trigger
- RES 2: 131.72 High May 7
- RES 1: 131.44 High May 30
- PRICE: 131.20 @ 05:46 BST Jun 2
- SUP 1: 130.39 May 29 low
- SUP 2: 129.49/13 Low May 22 / 15 and key short-term support
- SUP 3: 129.02 Low Apr 10
- SUP 4: 128.60 Low Apr 9 and a key support
A bullish theme in Bund futures remains intact and the contract is holding on to its latest gains. The recent recovery suggests the move down between Apr 22 - May 15, has been a correction. A continuation higher would strengthen the reversal and signal scope for a climb towards 132.03, the Apr 7 high. Key short-term support to watch is 129.13, the May 15 low. First support lies at 130.39, the May 29 low.
OIL: Crude Higher As OPEC Hikes Output As Expected & Geopolitics Worsen
Oil prices have defied the pullback in risk appetite from the increase in trade tensions and have rallied in relief that OPEC increased output as expected. There had been fears that it would be larger than the previous rises. The increase in geopolitical friction may also be providing some support with the relaxation of sanctions against Russia looking unlikely anytime soon.
- WTI has trended higher through the session and is up 2.8% to $62.50/bbl, close to the intraday high of $62.70, holding around initial resistance at $62.54, 50-day EMA. Brent is 2.5% higher at $64.33/bbl after reaching $64.49 earlier (50-day EMA $65.41). The USD index is down 0.1%.
- OPEC agreed on Saturday to increase output 411kbd from July, the third increase of this size which is believed to be a message to overproducers. Apparently Russia, Oman and Algeria wanted a pause in output normalisation, according to Bloomberg. The next meeting is on July 6.
- Bloomberg reported that Morgan Stanley expects OPEC to increase production three more times. It is forecasting Brent to average $57.50 in H2 2025 and $55 in H1 2026. Goldman Sachs though is forecasting only one more output rise. They both continue to project excess supply.
- Ukraine attacked Russian airbases with drones destroying at least 40 bomber planes, according to the BBC. It appears to be in response to larger Russian attacks on Ukraine including Kyiv. Talks are due to take place today.
- Later the Fed’s Logan, Goolsbee and Chair Powell appear as well as ECB President Lagarde, BOE’s Mann & Greene. US May manufacturing PMI/ISM and April construction and European May manufacturing PMIs print. The focus this week will be on Friday’s US payrolls.
ASIA STOCKS: Tariff Headlines Drive Major Bourses Lower
With China closed today, it was left to the Hang Seng to give an indication as to sentiment and it was definitely a risk off day. With uncertainty prevailing around the trade war, the US President had said over the weekend that China had violated a big part of the agreement made in Geneva whilst China hit back Beijing called on the US to correct 'discriminatory' measures and uphold the consensus reached in Geneva. Adding further to the uncertainty is the news of further tariffs on steel and aluminium and plans to target China's tech sector.
- With mainland bourses closed, the Hang Seng had centre state and fell -2.20%to be the worst performer out of its regional peers.
- The KOSPI had tried to rally early on but that faded away to be down by -0.35%.
- In Singapore the FTSE Straits Times fell by -0.50% whilst the PSEi in the Philippines was one of the few gainers, up +0.35%
- After a negative week last week, the NIFTY 50 in India is opening weak again, down -0.65% despite better than expected GDP figures out for Q1.
