Brexit
GBP/USD had its first big spike in Asia came on a Daily Telegraph report that a UK-EU deal was starting to take shape. That faded but was then replaced by another peak after the BBC reported the EU was keen on holding a special Brexit summit towards the end of October. EU officials said there was too much to do to have an agreement this week, but that since progress was made and discussions are ongoing, the Cable traded up to 1.2630 from around 1.2610 at the Asian open.
Sterling Rally
Various news outlets are reporting that Brexit deal is still possible this week and the UK will table fresh proposals to break the Brexit deadlock this morning.
HKMA
Drastic times call for extreme measures. In direct response to the economic damage caused by the weekend protests. The HKMA has effectively eased policy on Tuesday by cutting its Countercyclical Capital Buffer requirement on the local banking system from 2.5% to 2.0 %, valid immediately This is the first time the HKMA has cut the buffer since introducing it in 2015.
China CPI
China Sep. CPI is testing 3.0%; the 2019 inflation target officially started in March NPC which some investors view as an implicit upper bound set by Beijing. Given the CPI rise is being primary driven by pork prices and that 3% is the stated annual target, its unlikely to influence monetary policy decisions.
The Yuan
Despite a stronger than expect Yuan reference rate there was no joy for the Yuan bulls as China's factory gate prices declined at their fastest pace in more than three years in September, as the weakening economic fundamentals are putting more pressure on the Pboc to ease explicitly. But USD/CNH market and USDASIA remains well offered on retracements. But I’m not looking for any big downside move until phase one of the US-China trade deal is signed sealed and delivered as there has been a decent buy into short USD/ASIA this week.
Oil markets
Oil losses extended in Asia as traders were likely pre-hedging against a possible mushroom in US oil inventories. This after oil prices fell significantly during all the harmful trade noise around phase one deal, which reinforces the fact that the outcome of the US-China is the most massive influence and the most significant near-term factor.
Gold market
Gold received a small boost from the weaker China PPI data, but overall the skew has remained in favour of selling, where the apparent position trail risk lies in the absence of detrimental Brexit or talk headlines. The longer the market stays below 1500, the more jittery and susceptible it will be to a correction lower to positive Brexit news which should push global bond yields higher and diminish the opportunity cost of owning gold.
Japanese Yen
While USD/JPY has moved quickly higher of late, but other than the speed of the move there no significant reason not to stay long USD/JPY as risk sentiment remains toggled “ risk-on” and the BoJ could lower interest rates at months end.
The RBA
AUD/USD is net unchanged around 0.6770, having seen a blip up and down after the RBA minutes. The market's response has been mixed, with some are viewing the minutes pointed to a further rate cut and others that the RBA was pretty much at the end of the easing cycle. The statement is being considered right up there with the best when it comes to trying to interpret central bank verbal gymnastics.
In a new twist, the RBA "considered the argument that some monetary stimulus should be kept in reserve". They push back on this view noting that it is the level of rates, (not the change), which is the more important driver of demand. Which suggests that reducing rates now does not lessen their policy options for subsequent policy shocks, and if they want to avoid QE at all cost, they need to cheapen prices sooner and more profound.
Taiwan Intervenes In Currency Markets
In a market not being circulated by a large Swiss Bank, one of their Macro sales analysts reported
"Brad Setser, senior fellow for international economics at the US Council on Foreign Relations and former deputy assistant secretary for global economic analysis at the Treasury Department believes he's found evidence of the CBC's activities and as such highlights Taiwan for potential inclusion in the US Treasury's currency manipulator report. "
Setser has written a five-part report on why and how the CBC is involved in what amounts to a sizeable long TWD/short USD position, of around $130 bln or more – what he claims is "one of the largest FX derivative interventions any central bank globally has so far undertaken."
The long and short of it; Taiwanese life insurers have invested very heavily in USD denominated bonds to balance the book's they've resorted to cooking the books by effectively selling USD off-balance sheet.
USD/TWD remains offered likely by the same banks on the other end of this derivative transaction.