CNH: USD/CNH - Extends Below 6.9450, Will The PBOC start To Push Back ?

Oil prices have started a holiday-impacted week higher after falling sharply last Friday. Commodities generally were strong at the end of the week but crude diverged decreasing close to 2.5% due to thin volumes and ongoing talks towards a Ukraine peace deal. It has found support on Monday from China’s pledges to boost growth and strikes on Russian energy but doesn’t seem concerned about peace talks. It is the world’s largest oil importer and so an increase in its energy demand is important. 

• WTI fell 2.4% to $56.93 on Friday but is currently trading around $57.19/bbl, while Brent was down 2.3% to $60.80/bbl and has started this week at $61.15/bbl. Both benchmarks held above initial support levels.
• China’s Ministry of Finance said yesterday that it would extend the breadth of government spending.
• Presidents Trump and Zelenskyy met in Florida on the weekend and the former sounded optimistic on progress for a peace deal. He had spoken to Putin on the phone earlier. Zelenskyy said that 90% of a framework has been agreed. Security guarantees have apparently been reached. There will be further negotiations.
• An agreement that allows an easing of sanctions on Russian fuel would likely drive oil prices lower given current excess supply.
• Fighting has continued despite peace negotiations. Ukraine announced that it struck Russia’s Syzran oil refinery in Samara which followed an attack on the Lukoil refinery/pipeline in Volgograd. Ukrainian hits on Russian fuel infrastructure have put a floor under oil prices and driven distillate prices higher.
• Ukrainian attacks have created shortages in Russia driving export bans. Officials announced an extension of the current gasoline export ban to end-February, according to Bloomberg.
• Conflict in other oil exporters broadened to include Nigeria last week while the US blockade of Venezuela continues.

In Tokyo morning trade, JGB futures are little changed, +2 compared to settlement levels.

• The BOJ’s December meeting opinions showed growing confidence that rate hikes are appropriate to achieve the price target, with several members noting real rates remain negative, the yen is weak because policy is too accommodative, and delaying action could sustain price pressures.
• While the neutral rate is seen as hard to pin down and still some distance away, members favoured a flexible, meeting-by-meeting approach, with some suggesting hikes every few months, while stressing the need to closely monitor economic impacts as the likelihood of meeting the outlook continues to rise.
• Cash US tsys are flat to slightly richer, with a flattening bias, in today's Asia-Pac session.
• Cash JGBs are little changed across benchmarks. The benchmark 10-year yield is 0.4bp higher at 2.045% versus the cycle high of 2.104%.
• Swap rates are showing no net change. 

Aussie found support from stronger Asian equities and commodities to outperform most of the G10 on Friday with AUDUSD up 0.2% to 0.6716 off the intraday high of 0.6725. The pair is currently around 0.6712. The BBDXY USD index was down only slightly.

• AUDUSD reached a low of 0.6697 before recovering. It held above the 20-day EMA at 0.6614. The pair continues to trade above key resistance at 0.6707, 17 September high, reinforcing the bullish trend condition with the focus now on 0.6723, 21 October 2024 high.
• With the yen underperforming, AUDJPY rose 0.6% to 105.17, the intraday peak but also the highest since mid-2024. The pair has been trending higher since April this year. It has started today slightly lower at around 105.0.
• NZDUSD was flat on Friday at 0.5837 and is currently around 0.5826. It rallied from a low of 0.5818 to 0.5842. Kiwi underperformed Aussie though leaving AUDNZD 0.3% higher at 1.1512 and is currently +0.1% to 1.1522. The pair has trended higher since April as global trade risks dissipated and monetary policy expectations between the two countries diverged. It stabilized around 1.14-1.16 over November/December.
• Most equity markets were shut but the S&P e-mini was flat but the Nikkei rose 0.7% and CSI 300 +0.3%. Oil prices fell with Brent -2.3% to $60.80/bbl. Copper soared 5% and iron ore is around $104-105/t.
• There are no data or events in Australia or NZ today.