ASIA FX: Won Recovering While Rupiah Weakens Sharply On Fiscal Uncertainty
Jan-02 04:47
Asian currencies are mixed against the US dollar during trading today with the rupiah weaker but won stronger. The BBDXY USD index is close to its intraday low to be down 0.2% after it finished 2024 strongly.
- USDKRW is down 0.3% to 1467.30, after a low of 1466.0. Political uncertainty remains elevated with new acting President Choi’s advisers wanting to resign, which he rejected. There is concern that these issues will weigh on growth going into 2025 and the manufacturing PMI fell to 49.0 in December from 50.6.
- In contrast, USDIDR is 0.8% higher at 16230 after an intraday peak of 16258.5. Rupiah weakness has been driven by President Prabowo’s decision to materially narrow the number of goods that the VAT increase will impact. Finance minister Indrawati tried to reassure markets stating that the 2024 deficit is likely to be lower than estimated.
- USDIDR is up 0.3% since December 23 and 1.0% since the December 18 Bank Indonesia meeting. It next meets on January 15 and if there isn’t significant rupiah strengthening before then, a rate cut is again unlikely.
- USDCNH is down 0.3% to 7.3172 following an intraday low of 7.3161. The Caixin December manufacturing PMI disappointed falling to 50.5 from 51.5.
- USDPHP is little changed at 57.82, USDTHB is up 0.3% to 34.21, while USDSGD is down 0.4% to 1.3613 after a stronger-than-expected Q4 GDP release.
- India’s HSBC final December manufacturing PMI and December Thai business sentiment are coming up.
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AUSSIE BONDS: Richer, AU-US 10Y Diff. Tighter, Q3 GDP Tomorrow
Dec-03 04:41
ACGBs (YM +2.0 & XM +2.5) are richer but off Sydney session bests.
- The net export contribution to growth in Q3 was 0.1pp, less than expected, but the strongest public demand contribution since Q1 2022 means that GDP forecasts are likely to be little changed or maybe skewed to the upside.
- Real public demand grew 2.4% q/q after 0.9% in Q2. It is expected to contribute 0.7pp to GDP tomorrow. The increase was driven by state & local government expenditure and public GFCF.
- Cash US tsys are slightly cheaper in today’s Asia-Pac session. Focus now turns to Wednesday's ADP private employment and ISM data ahead of Friday's non-farm payroll release.
- Cash ACGBs are 2-3bps richer with the AU-US 10-year yield differential at +10bps.
- Swap rates are 2bps lower.
- The bills strip has bull-flattened, with pricing flat to +3.
- RBA-dated OIS pricing is flat 4bps softer for 2025 meetings. A 25bps rate cut is not fully priced until May.
- Tomorrow, the local calendar will see S&P Global PMI Composite & Services and Q3 GDP data alongside AOFM’s planned sale of A$700mn of the 3.25% 21 April 2029 bond. The AOFM also plans to sell A$800mn of the 3.75% 21 April 2037 bond on Friday.
BONDS: NZ-US 10Y Differential Lowest Since Mid-2021
Dec-03 04:18
NZGBs closed the day in a bull-flattening pattern, with benchmark yields ending flat to 4bps lower.
- The 10-year NZGB slightly outperformed, with the NZ-US and NZ-AU 10-year yield differentials tightening by 1-2bps.
- The NZ-US 10-year differential, now at +10bps, is hovering near its tightest levels since mid-2021.
- A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +9bps.
- Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship.
- The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
Figure 1: NZ-US 10-Year Yield Differential
Source: MNI – Market News / Bloomberg
OIL: Crude Range Trading Pressured By Stronger US Dollar
Dec-03 04:10
Oil prices have been trading in a narrow range and are off their intraday lows to be down slightly on the day. WTI is down 0.1% to $68.18/bbl after a low of $67.91 and Brent is 0.1% lower at $71.93/bbl after falling to $71.68. The stronger US dollar continued to pressure crude (USD BBDXY +0.1%) offsetting mild optimism from China’s manufacturing PMI.
- Cold weather in Europe has increased heating demand boosting natural gas prices, but also distillate which includes heating oil.
- US industry-based inventory data is out later today. Crude stocks have been declining but products rising. The official EIA figures are on Wednesday.
- The focus of the week will be Thursday’s OPEC+ meeting, where it seems likely that supply increases will be pushed out into Q1, and Friday’s US payrolls report.
- Later the Fed’s Daly, Kugler & Goolsbee and ECB’s Cipollone speak. In terms of data, US October job openings and Spanish November unemployment print.
