CNH: USD/CNH Holding Above 7.1600, CNY Basket Down for 7th Straight Session
USD/CNH was little changed in Wednesday trade, the pair tracks near 7.1620 in early Thursday dealings. Spot USD/CNY onshore ended Wednesday trade at 7.1631, while the CNY CFETS basket tracker edged down a little further to 95.09, down for the 7th straight session.
- For spot USD/CNH, recent lows near 7.1500 remain within sight, while the 20-day EMA resistance point (now close to 7.1760), may remain a cap on the upside. The 50-day EMA resistance point, which we haven't been above since April of this year, now resides close to 7.2000.
- Broader USD indices didn't shift much on Wednesday (with GBP weakness the most notable move), as markets await the US NFP later this evening. A downside surprise may raise July Fed easing prospects, a like USD negative, which could see USD/CNH test the 7.1500 region, but CNH is likely to lag broader dollar trends, particularly in terms of EUR and JPY . Conversely an upside NFP surprise will support broader USD sentiment, but again CNH will likely maintain a low beta with respect to such shifts.
- USD/CNH implied vols remain close to recent lows, last near 3.7% for the 1 month.
- Overnight US President Trump stated the US had reached a trade deal with Vietnam. Reported details include a 20% tariff on Vietnam exports to the US, and a 40% tariff on goods which have been transhipped through Vietnam (see this BBG link). This latter point may be of interest to China, given the surge in its trade surplus with Vietnam recently. We await more details
- On the data front, we have the June Caixin services PMI out today. The market consensus is for a 50.9 print (21.1 was the May outcome).
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AUSSIE 10-YEAR TECHS: (M5) Bear Cycle Remains Intact For Now
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.700 @ 16:30 BST June 02
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures rallied well on the RBA rate decision, reversing a small part of recent weakness. Recent price action pressured prices through to new pullback lows last week. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition. To the upside, a recovery of recent losses would shift attention to resistance at 96.207, a Fibonacci retracement point.
US TSYS: Yields Close Higher
TYM5 reopens at 110-18, up 0-03 from closing levels in today’s Asia-Pac session.
- Friday night US 10-year yields had a range of 4.4161% - 4.4676%, closing around 4.44%.
- Treasury yields ended higher across the board overnight, yield curves ended mixed(2s10s +0.45 at 50.12, 5s30s -0.68 at 95.86).
- US DATA: The ISM Manufacturing headline PMI reading unexpectedly fell to 48.5 in May (49.5 survey, 48.7 prior), leaving it in contractionary territory for a 4th month. As the survey put it, "contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken". Tariffs cast a heavy shadow over this stagflationary report report, impacting everything from exports to prices paid.
- Despite soft-looking ISM Manufacturing and construction spending data this morning, the Atlanta Fed's GDPNow estimate for Q2 GDP growth picked up to 4.6% vs 3.8% Friday.
- The 10-year has bounced nicely off its support around 4.35/40%. Yields need to hold above this area to continue to build for a move higher.
AUD: AUD/USD - Looking To Test Above 0.6500 Again
The AUD had a range overnight of 0.6455 - 0.6500, Asia is opening around 0.6490. The USD sell-off that began in Asia was extended overnight and the AUD and NZD have both been big beneficiaries as they both gain over 1%.
- Bloomberg - “Australia and Singapore bonds are getting a lift from rising questions about the appeal of Treasuries. A tumble in the value of the US dollar has also put pressure on investors across Asia to find alternatives.”
- Bloomberg - “ The pace of house price increases remains barely above inflation, and together with subdued turnover, suggests a housing market upswing isn't likely to worry the central bank just yet.”
- “Australian home prices rose for the fourth consecutive month, driven by interest rate cuts and expectations of further cuts later this year.”(BBG)
- The AUD bounced pretty hard against the USD overnight so If you want to express a short it looks best to do that in the crosses for now.
- Expect buyers to continue to be around on dips while the support in the AUD holds, a close back below 0.6300/50 would start to challenge the newly formed uptrend.
- Price is back to testing the topside resistance, a sustained break above 0.6550 and the move higher could begin to accelerate.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6500(AUD764m), 0.6415(AUD672m). Upcoming Close Strikes : 0.6300(AUD 1.47b June 6)
- CFTC Data shows Asset managers pared back their shorts ever so slightly, the Leveraged community though added to their shorts quite aggressively over the week.
- Data/Event: RBA Minutes, BoP
Fig 1: AUD/USD spot Daily Chart
Source: MNI - Market News/Bloomberg
