THB: USD/THB - Bounces Off 32.4000-32.50000 Support On A Hawkish Fed

The AUD & NZD are both drifting lower as the bounce in risk has not followed through into Asia after its late bounce in New York thanks to Trump’s statement a Middle-East deal is close. I remain skewed toward fading AUD & NZD rallies though remain cognisant of the risks posed by any potential announcement of a deal.

• {AUDUSD Curncy} - 0.7145, -0.30%
• {NZDUSD Curncy} - 0.5860, -0.30%
• {AUDNZD Curncy} -  1.2200, -0.01%

The cash ACGB 10-year yield is 8bps richer on the day, with the AU–US 10-year spread at +44bps, the lowest levels this year.

• At current levels, the spread sits below the 50–80bp range that had prevailed this year. This followed a sustained shift away from the tighter ±30bp band that had contained the differential from November 2022 until the breakout earlier this year.
• The widening in the 10-year differential observed at the end of last year coincided with a steady firming in market-implied expectations for the RBA cash rate, alongside a marked ~190bp rise in the AU–US 1Y3M swap spread — a useful proxy for relative policy rate expectations over the coming 12 months.
• Since mid-March, the AU–US 1Y3M spread has narrowed by around 60bps, with the 10-year yield differential broadly moving lower in tandem.
• However, a simple regression of the 10-year yield differential on the AU–US 1Y3M swap spread over the past two years suggests some lag, with the current differential sitting around its regression-implied fair value.

Figure 1: AU-US Y3M Swap Spread (%)

Bloomberg Finance LP / MNI

The BBDXY range overnight was 1199.49-1203.23, Asia is currently trading around 1200. The USD rebound stalled and could not find the energy needed to break back above the pivotal 1205 area, Trump's announcement an hour before the N/Y session closed only added to its headwinds. The market is much more comfortable selling US dollars, but it will need an actual peace deal in the  Middle-East for the Bears to return to the fray en masse. The US 2-Year yield move stalled toward some significant resistance, I suspect we do some work around here(4.10%-4.15%) initially but a clear break of this area would have a rippling effect for the USD. On the day, the first resistance remains in the 1204-1206 area, a sustained break back above 1205 and the USD bears conviction will be put to the test. Any announcement of a deal and I suspect we get a knee-jerk lower again, tough market to put on any significant risk.                         

• Otavio Costa on X: “Wait until the US is forced to step in and contain surging yields through some form of yield curve control. A weaker dollar alongside artificially suppressed yields creates the perfect environment for emerging markets to significantly outperform US equities.”
•  The BBDXY Average True Range for the last 10 Trading days: 4.48 Points

Fig 1: BBDXY Daily Chart

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