PHP: USD/PHP Breaks Higher, Cross Asset Headwinds Persist

Given the August decision to cut rates was unanimous, the discussion regarding the outlook was the important part of the RBA meeting minutes. They were clear that further rate cuts were consistent with underlying inflation returning to the 2.5% mid-point of the target band. It was the pace of future easing that “was not yet possible to judge” with the risks around the outlook “in both directions”.

• It was noted by the Board that a continued gradual pace of rate cuts was warranted by the labour market remaining “a little tight”, inflation forecast to be “marginally above the midpoint of the target range”, private demand “showing signs of recovering”, and uncertainty over where neutral is and the “degree of spare capacity”. Gradualism buys them time to examine “incoming information”.
• There were reasons to ease at a faster pace though, which included the labour market already in balance which risks an undershoot of the inflation target, and if the risks shift to the downside driven by global developments or a bumpy shift to market sector employment from the non-market sector.
• Too much uncertainty remains to determine the speed of future easing and so the RBA remains highly data and outlook dependent and will decide on a “meeting-by-meeting basis”.
• It also discussed its bond holdings and decided to continue to reduce them as they mature.

Aussie government bond yields sit a touch off earlier highs post the RBA minutes, but we remain within recent ranges. The 3yr bond yield was last around 3.38%, down a touch post the RBA minute headlines. Session highs rest above 3.40%. There is less change towards the back end of the curve, with the 10yr continuing to hold close to 4.29%. 

• The RBA minutes noted further easing is likely over the coming year, which is expected to be at a gradual or slightly faster pace. The board judged it is too soon to know which scenario is likely to unfold and would be guided by incoming data. 
• RBA dated OIS for the Dec meeting is down a touch, last around 3.22%, while session highs rest at 3.24%.
• In the futures space, we are holding modestly softer for the 3yr and 10yr futures, 10yr (XM) last close to 95.68.
• US Tsy moves may also be spilling over, with weakness in front end yields after Trump stated earlier he was removing Fed Governor Cook from her position. 

This morning's news that Trump has removed Fed Governor Cook will just add fuel to the rate cut fire, with Trump now in a position to appoint another uber dovish Governor to do his bidding. Will this eventually break the world's trust in US institutions though? This morning US futures have turned lower on this news, ESU5 -0.15%, NQU5 -0.30%. The JPY crosses continued to trade sideways for the most part with their upward momentum looking to have stalled for now.

• EUR/JPY - Overnight range 171.58 - 172.66, Asia is trading around 171.50. This pair’s move higher looks to be stalling for the moment. A sustained break above 173.00 is needed to see momentum pick up and the uptrend regain the upper hand. The price action suggests risk is we drift back to 170.00.
• GBP/JPY - Overnight 198.70 - 199.29, Asia trades around 198.50. This pair topped out around 199.50 overnight. A sustained break above 200.00 is needed to see momentum higher restored. Like EUR/JPY momentum higher seems to be stalling, a move back below 197.50 could signal a deeper pullback.
• NZD/JPY - Overnight range 86.32 - 86.65, Asia is currently dealing 86.10. The pair found decent selling around 86.50 the last couple of days. Is that the end of the pullback, I would have preferred something back towards 87.00/50 to fade.
• CNH/JPY - Overnight range 20.5641 - 20.6616, Asia is currently trading around 20.5800. This pair has again bounced off its pivotal 20.30/20.40 support. A sustained break back below 2.3000 is needed to turn momentum lower again, until then it looks comfortable in a 20.4000-20.9000 range.

Fig 1 : NZD/JPY Hourly Chart

Source: MNI - Market News/Bloomberg Finance L.P