FOREX: USD/JPY Drifts Lower, Steady G10 Trends Elsewhere

• Gold opened the week at US$3,237.61, a new high and rallied into the Asian trading morning to reach another new high of $3,245.75, before backing off to $3,230.70
• Goldman Sachs has raised it year end price target to $3,700, but warned in an extreme risk case, it could reach $4,500.
• Australia’s Northern Star Resources attempt to purchase the smaller De Grey Mining got a huge boost when Gold Road Resources (which owns 17% of De Grey) agreed to support the takeover (source  BBG).
• Vietnam has discovered 12 new gold mines in the central region, containing more than 10 tonnes of gold and 16 tonnes of silver, following extensive geological surveys, the Mid-Central Geological Division said, VNExpress reported. (source BBG)

USD/CNH is holding above 7.3100 at this stage, close to session highs of 7.3173. We are around 0.30% weaker in CNH terms, while spot USD/CNY has pushed back above 7.3000 so far today. We continue to see meaningful divergence broader USD index trends. The BBDXY index is up from earlier lows though (from sub 1230, to be back near 1232). 

• The USD/CNY fixing pushing up to multi year highs above 7.2100 suggests further gradual depreciation pressures in the yuan. The chart below shows the fixing and broader USD BBDXY breakdown.
• The authorities are likely to remain comfortable with further CNY basket weakness, as lower levels will help ease financial conditions. We had trade figures earlier, which showed higher than expected export growth, but significant uncertainties remain over the overlook given higher US tariff levels.
• CNH/JPY is up slightly from recent lows, last near 19.56, on Friday the pair dipped to 19.43. EUR/CNH was near 8.3200 in latest dealings, with recent highs near the 8.4000 level.
• China is likely to watch how Japan negotiations on trade unfold. Currency discussions may also feature, which has been hinted at by Japan officials.
• There still appears some distance between the US and China sides though. Market sentiment was buoyed by the late Friday news around tariff exemptions for key electronic products, but US President Trump said the whole electronics sector would still be subject to national security tariff related probe. 

Fig 1: USD/CNY Fixing & USD BBDXY  

Source: MNI - Market News/Bloomberg 

The AUD and NZD have both held onto their respective gains from last week in tight Asian ranges. Broad USD weakness last week has seen an overhang of AUD and NZD shorts being pared back.

• AUD/USD - Asian range 0.6278 - 0.6314, AUD has traded sideways for the whole Asian session, albeit near the highs of last week. Shorts will be hoping for sellers to return but will be watching the 0.6400 area this week for signs of breaking to signal the next leg of position squaring.
• AUD/JPY - Asian range 89.57 - 90.81, AUD/JPY fell away early in the session moving down to the 89.60 area before buyers reemerged. Price goes into the London open around 90.00. AUD/JPY is trying to build a base as risk stabilises, but it remains to be seen if this will last. Expect supply once more back towards the pivotal 94.00 area.
• NZDUSD - Asian range 0.5819 - 0.5860, NZD has traded sideways the whole session but there is still no dip. NZD printing around 0.5850 going into London, the market is short and the price action poor. Watch a close above the 0.5850 area for the next potential level to trigger short covering.
• AUD/NZD - Asian range 1.0754 - 1.0830, the cross drifted lower in the Asian session before finding some buyers towards the 1.0760 area. The cross is going into London pretty directionless but the risk still feels that bounces will be capped as liquidity in the NZD dries up quicker than for the AUD on any move higher.

Fig 1: NZD Spot 

Source: MNI - Market News/Bloomberg Antipodean Wrap - AUD & NZD Holding Onto Gains