CNH: USD/CNH Back Under 50-day EMA, Implied Vols Hit Cycle Lows
Spot USD/CNH tracks near 7.1285 as the CNY fixing approaches. Amid broader USD softness that unfolded on Wednesday we have seen the pair pull back from recent highs (7.1383), while we are also back under the 50-day EMA, but still above the 20-day EMA support point (closer to 7.1250). Spot USD/CNY ended up at 7.1268 yesterday, while the CNY CFETS basket tracker got above 98.00, fresh multi month highs. Focus will be on whether this trend continues, as softer USD backdrops typically coincide with lower basket levels.
- For USD/CNH, implied vols remain very lows, the 1 month last under 2.40%. Similar trends are being seen across other parts of the implied vol curve. The 1yr is just up from fresh lows back to 2015, last at 3.73%.
- The combination of the US-China trade truce, along with the fixing bias which remains skewed against sharp USD/CNY moves, leaves the market happy to fade implied vol upticks.
- In terms of key crosses, CNH/JPY has rebounded back above 21.50, last around 21.59, and keeping the recent uptrend intact (upside focus will rest with late Oct highs near 21.7035. EUR/CNH has steadied but remains sub 8.2000 for now.
- The local data calendar is empty today, but we get Oct trade figures tomorrow, along with FX reserves. The market expects export growth to cool from 8.3%y/y to 2.8%.
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AUSSIE BONDS: Slightly Mixed After Today's Weak Data
ACGBs (YM +0.5 & XM -0.5) are slightly mixed after today’s data.
- “Australia’s consumer confidence slipped to a six-month low this month on renewed doubts about hopes of future interest rate cuts given recent strength in inflation.” – BBG
- ANZ-Indeed job advertisements dropped 3.3% from a month earlier in September, the largest monthly decline since February 2024.
- Cash US tsys are flat to 1bp cheaper, with a steepening bias, in today's Asia-Pac session after yesterday's modest sell-off.
- Cash ACGBs are 3-6bps cheaper, after being closed yesterday, with the AU-US 10-year yield differential at 24bps.
- The bills strip is little changed.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in November is given a 39% probability, with a cumulative 13bps of easing priced by year-end (based on an effective cash rate of 3.60%).
- The AOFM plans to sell A$1200mn of the 4.25% 21 March 2036 bond on Wednesday.
STIR: RBNZ-Dated OIS Holding Post-GDP Softening Ahead Of RBNZ Decision
RBNZ-dated OIS pricing is slightly softer across meetings today, ahead of tomorrow’s RBNZ Policy Decision.
- 36bps of easing is priced for tomorrow’s meeting, with a cumulative 63bps by November 2025.
- Notably, pricing is 12-29bps softer across meetings versus 18 September’s pre-Q2 GDP levels.
- Both the production and expenditure-based GDP measures fell 0.9% q/q in Q2, the weakest since the pandemic. The RBNZ had expected a 0.3% q/q decline.
Figure 1: RBNZ Dated OIS Current vs. Pre-Q2 GDP (%)
Source: Bloomberg Finance LP / MNI
US STOCKS: Russell Index, Makes New All-Time Highs Tests 2500
The Russell 2000 overnight range was 2481.34 - 2501.91, closing +0.41%. The Russell 2000 found demand back towards 2400 and bounced nicely as the market reacted to benign US data last week. The Russell would be the biggest beneficiary of a new cutting cycle and is looking to regain topside momentum as it makes new all-time highs above 2500. CFTC data is not available but the price action suggests leveraged funds continue to pare back their large shorts.
- CNBC - “Paul Tudor Jones says the stage is set for a massive rally before the bull market reaches a “blow off” top. “All the ingredients are in place, and, certainly from a trading standpoint, you have to position yourself like it's October 1999.” Jones said in an interview with CNBC.
- MNI: Schmid Says Fed Must Maintain Credibility On Inflation. Kansas City Fed President Jeff Schmid said Monday that monetary policy must remain restrictive in the face of an inflation path that remains unacceptably elevated. "With inflation still too high, monetary policy should lean against demand growth to allow the space for supply to grow and relieve price pressures in the economy," Schmid said according to prepared remarks. "The current environment is one where aggressively boosting demand could raise the risk of an outsized increase in prices, as firms gain pricing power and increase the passthrough of tariffs to consumers.
Fig 1: Russell 2000 Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
