TWD: USD/TWD Continues To Rally Despite Local Equity Rebound

ACGBs (YM +1.5 & XM +3.0) are little changed after the release of the RBA Minutes for the July Policy Meeting.

• The RBA's July meeting minutes show the Board focused on the timing and extent of any further rate cuts. While they agreed the inflation outlook supports some easing over time, most members felt a third cut at this stage would be inconsistent with their cautious and gradual approach. The stance of monetary policy is still considered modestly restrictive, and the Board wants greater confidence that inflation is heading sustainably toward the 2.5% target.
• Given uncertainty around how restrictive policy currently is, the RBA judged it prudent to proceed cautiously. Most members preferred to wait for additional data, particularly the Q2 CPI and more labour market indicators due in August.
• Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's rally.
• Cash ACGBs are 1-4bps richer with the AU-US 10-year yield differential at -8bps.
• The bills strip has twist-flattened, with pricing -2 to +1.
• RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in August is given a 100% probability, with a cumulative 65bps of easing priced by year-end (based on an effective cash rate of 3.84%).

Thailand's Finance Minister is expected to submit the nomination for the new BoT Governor at a cabinet meeting today in Thailand. This was expected to happen last week, but didn't eventuate as the submission was reportedly not made in time. BBG noted that Vitai Ratanakorn is expected to be nominated for the position. He is a banker (currently running the Government Savings Bank) and is generally seen as the more dovish candidate relative to Roong Mallikamas, who was the other candidate put forward (she is the Deputy Governor for Financial Stability at the BoT). 

• The Bangkok Post notes: "Mr Vitai's monetary policy approach is said to align closely with the government's direction, which seeks to enhance the role of monetary policy in supporting the economy during this period." (see this link for more details).
• Per MIPR on BBG market pricing has around two further BoT cuts priced in over the next 12 months (the current policy rate is 1.75%). The potential for a more dovish BoT outlook has been a factor cited as supporting the local equity rebound of late. The chart below overlays the 6 month market outlook, which is the white line on the chart, versus local equities (the orange line), which are inverted on the chart.
• The recent rebound in equities may have reflected lower policy rate expectations to a degree, although the historical correlation is not strong.
• For THB, a more dovish BoT should weigh all else equal, but baht is trading at much stronger levels than implied by US-TH rate differentials. Higher gold prices are providing an offset. USD/THB is breaking lower in early dealings today, last under 32.30, fresh lows back to end Sep last year.

Fig 1: Thailand Equities (Inverted) & Market Pricing On BoT Outlook (6mths Forward)  

Source: Bloomberg Finance L.P./MNI 

US stocks closed poorly off some All-time highs overnight. This morning has seen US futures open slightly higher, ESU5 +0.08%, NQU5 +0.07%. The JPY followed through with its bounce, one could surmise the election outcome had already been priced in and there were more negative scenarios that did not come to pass. If risk continues to trade well then this dip in the JPY crosses should eventually find some demand from which to try higher again, though with upward momentum having stalled patience is required.

• EUR/JPY - Overnight range 171.92 - 172.55, Asia is trading around 172.40. This pair has had a decent move higher and has led the charge against the JPY longs. Short-term it is starting to look a little stretched but the direction is clear and should expect demand on dips. First support 170.50 area then the more important 168.50 area.
• GBP/JPY - Overnight 198.53 - 199.23, Asia trades around 198.90. The pair continues to find good demand towards its support around 198.00 though momentum higher has stalled for now. 
• NZD/JPY - Overnight range 87.92 - 88.35, Asia is currently dealing 87.95. The pair has also seen upward momentum stall. The Support towards 87.00 needs to hold for the focus to remain on the 90.00/91.00 area.
• CNH/JPY - Overnight range 20.5118 - 20.6532 Asia is currently trading around 20.5700. This pair has pulled back from its highs but the pair still looks like it could continue to press higher. Look for demand now back towards the 2.4000 area.

Fig 1 : CNH/JPY 120min Chart

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