MYR: Weak End for the Ringgit

The AUD/USD has had a range of 0.6512 - 0.6534 in the Asia- Pac session, it is currently trading around 0.6525, +0.18%. The USD has surged higher on the back of the US CPI showing clear signs that tariffs are beginning to impact the core goods data. US yields and the USD have both reacted as the market further reduces rate cut expectations for the year. This has seen currencies take a hit across the board, the AUD/USD has fallen quickly back to the lower end of its recent 0.6500/0.6600 range, its fortunes clearly tethered to the USD and if it can continue to pressure a short market then the AUD/USD could probe its support just below 0.6500. A Sustained break through this level opens up the potential for a further pullback towards the 0.6350 area.

• “The Australian dollar was bought by exporters ahead of Thursday’s local jobs report, according to Asia-based FX traders.” - BBG
• (Bloomberg Economics) -- Australia’s labor market report for June is likely to show a lift in jobs and a slight increase in the unemployment rate. We expect a 20k increase in jobs, after a weaker-than-expected 2.5k decline in May.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6550(AUD452m), 0.6575(AUD670m). Upcoming Close Strikes : 0.6480(AUD786m July18), 0.6500(AUD639m July 21), 0.6600(AUD725m July 21)
• CFTC Data shows Asset managers added to their shorts slightly -38252, the Leveraged community pared back their shorts to -19061..
• AUD/JPY - Today's range 96.94 - 97.24, it is trading currently around 97.20, +0.25%.   The pair has had a good move above 96.00 and looks to be building momentum to extend higher. The market has been caught wrong-footed in both legs of this pair and price action suggests a potential move back to 99.00/100.00. With the risk backdrop souring it is unusual to still see this pair so well bid, this continues to point to a market that is paring back positioning. A Deeper correction in risk though would start to provide headwinds to further gains.

Fig 1: AUD/USD spot Hourly Chart

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

The TYU5 range has been 110-08+ to 110-12+ during the Asia-Pacific session. It last changed hands at 110-11+, up 0-02 from the previous close. 

• The US 2-year yield is trading around 3.94%.
• The US 10-year yield is trading around 4.477%.
• The 10-year yield has broken above 4.45% in response to the CPI Data, this implies price is likely to turn its focus back to 4.65% and could see further paring back of longs. Support is now back towards the 4.35/40% area which has been the pivot in the larger 4.10% - 4.65% range.
• (Bloomberg) -- “I think it sort of is,” President Donald Trump says when asked whether the renovations at the central bank were a fireable offense for Federal Reserve Chair Jerome Powell.
• “LOGAN: BASE CASE CALLS FOR CONTINUED RESTRICTIVE POLICY, HAVE BEEN DISAPPOINTED BEFORE AFTER STREAKS OF LOW INFL. ALSO POSSIBLE SOFTER LABOR MKT COULD REQUIRE CUTS SOON.” - BBG
• Bloomberg - “Term premium has been rising in several government bond markets, especially the UK, Japan and France. All three have large legacy debt loads, significant fiscal deficits and mushrooming interest payment costs. Even the US facing a mini-fiscal crisis cannot be completely ruled out, given its enormous borrowing and falling revenues relative to its deficit.”

Fig 1: 10-Year US Yield Hourly Chart

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

Asian equities are trading in a mixed fashion so far in Wednesday trade. There is a modestly negative bias for US and EU futures as markets digest Tuesday's US CPI data. US Tsy yields are little changed so far today though. The best performer in the region has been Taiwan, while the Philippines bourse has fallen but close to 1.8%. 

• China and Hong Kong markets are mixed. The CSI 3000 is down modestly, but still above 4000 at this stage. Sell-side analysts are upgrading their full year China growth projection after yesterday's Q2 GDP beat. Still, concerns around retail spend and the property sector is likely tempering optimism.
• The Hong Kong's HSI is marginally higher, last under 24700, which marked earlier highs for the index and coincided with highs back in March. We may need to see a fresh positive catalyst from here to propel sentiment higher.
• Japan markets are little changed, while Taiwan's Taiex has risen through 23000, last up nearly 1%. Broader tech optimism is aiding sentiment. Still, the Kospi is struggling so far today, the index back under 3200.
• In SEA, the Philippines market is off by around 1.8%, having failed to hold above 6500 in recent session. The firmer US yield backdrop, coupled with uncertainty around Fed easing timing, has pushed most USD/Asia pairs higher, which could also be weighing on market sentiment in the Philippines.  
• Other trends are mixed, with Indonesian stocks up around 0.60%, aided by the 19% tariff deal with the US (which is lower than tariff rates in some other parts of the region).