ASIA FX: USD/Asia Pairs Sink, China/HK Out On Monday
USD/Asia pairs are lower across the board, in line with the DXY -0.80% fall. Positive equity gains, coupled with slightly lower US yields have helped from a cross asset standpoint.
- USD/CNH is back sub 6.9400, -0.35% for the session so far. The fixing was again on the firm side. This week has seen the fixing bias nearly double compared to last week. China inflation printed much weaker than expected, underscoring the weak domestic demand backdrop. This hasn't impacted USD/CNH but the yuan has underperformed against G10. The US is ramping up its tech warning around investments into China, but this hasn't impacted onshore sentiment. Onshore equities are higher, led by the property sector.
- Note China and Hong Kong markets are closed on Monday.
- USD/KRW and USD/TWD are both lower in the 1 month NDF space, even with onshore markets shut today.
- USD/MYR is back below 4.5000. As expected BNM hike yesterday, but the outlook was somewhat dovish, given the central bank expects inflation to peak in Q3 and sees downside growth risks.
- USD/PHP is sharply lower, back down through 56.90, in line with broad based USD weakness. The trade figures were close to expectations in terms of the deficit (-$5.93bn) but export growth fell -4.2% y/y, well below expectations.
- USD/IDR is lower, back to 14852, -45.5 figs for the session. BI officials noted that they haven't been intervening much in the FX markets and that FX demand/supply is manageable.
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EURGBP TECHS: Holding On To Recent Gains
- RES 4: 0.8627 High Jul 4
- RES 3: 0.8585 High Jul 21 and a key resistance
- RES 2: 0.8476 50-day EMA
- RES 1: 0.8462 High Aug 9
- PRICE: 0.8455 @ 06:32 BST Aug 10
- SUP 1: 0.8340 Low Aug 2 and the bear trigger
- SUP 2: 0.8313 Low Apr 22
- SUP 3: 0.8233 2.0% 10-dma envelope and low Apr 14
- SUP 4: 0.8203 Low Mar 7 and a key support
EURGBP traded higher Tuesday and is holding on to its latest gains since bouncing off 0.8340, the Aug 2 low. The broader outlook is bearish and gains are considered corrective. Recent weakness reinforced a bearish theme and established a price sequence of lower lows and lower highs. Moving average studies are in bear mode too. A continuation lower would open 0.8313, Apr 22 low. Initial firm resistance is 0.8476, the 50-day EMA.
AUD: A$ Weighed By Softer Commodities
AUD/USD isn't too far away from the session lows but is holding above 0.6950 for now. We are only 0.15-0.20% below NY closing levels, but the A$ has underperformed the rest of the G10 FX complex today, which is much closer to flat against the USD.
- AUD/JPY has edged back down to 93.90, not too far from the 50 day MA (93.87). AUD/NZD is already sub its 50 day MA, at 1.1063, with the pair last tracking 1.1057.
- The softer tone to regional equities hasn't helped, while commodity prices have drifted lower as well. Brent is back closer to $96/bbl, while iron ore is back to the low $109/tonne. Copper (CMX) has slipped 0.60%.
- The AU-US 2yr spread has risen, back to -48bps, versus early levels around -52bps, but hasn't had a big influence on A$ sentiment today.
- Note tomorrow's calendar has August consumer inflation expectations.
JGBS: Curve Twist Flattens
Wednesday saw another day of firm demand for super-long JGBs, although the 1- to 10-Year zone cheapened in the afternoon, with little in the way of a definitive catalyst observed. Note that the aforementioned bid in the longer end seems to be driven by interest in JGBs, with super-long swap spreads a little wider on the session, albeit back from session wides ahead of the bell.
- That leaves the major cash JGB benchmarks running little 2.0bp cheaper to 2.5bp richer as the curve bull flattens.
- Futures pulled lower in the Tokyo afternoon after paring modest overnight losses in the morning, last dealing -26.
- The breakdown of the latest BoJ Rinban operations revealed the following offer/cover ratios:
- 1- to 3-Year: 1.80x (prev. 2.66x)
- 3- to 5-Year: 3.13x (prev. 3.22x)
- 5- to 10-Year: 2.97x (prev. 2.04x)
- We wouldn’t suggest that the uptick in the offer/cover for the 5- to 10-Year bucket was meaningful enough to drive the sell off observed in JGBs out to 10s during the Tokyo afternoon, at least not in isolation.
- A reminder that Japan will observe a national holiday on Thursday, which will mean that JGBs are closed. Any downside momentum in futures/JGBs out to 10s in the wake of the uptick in the offer to cover in the 5- to 10-Year Rinban operations may have been exacerbated by traders closing out longs as they don’t want to carry excess risk over the period when U.S. CPI data will be released, given the holiday closure of JGB markets.
- A slightly firmer than expected PPI print has headlined when it comes to domestic news flow, although there was still a moderation in the rate observed in the headline Y/Y reading (to +8.6% from +9.4%).
- Elsewhere, Japanese Finance Minister Suzuki noted that protecting the fiscal health of the nation is his most important task, while highlighting the severe fiscal issues facing the country.
