Things seem a little quiet in Asia Pacific as markets take a breather from some recent volatility. The danger of these calmer waters is always that sudden shock of a tidal wave from the Fed, China or another central bank tinkering with its monetary policies. For now, it looks like markets are heading for a mid-week nap.
The Aussie
Very much range bound markets in the G-3 space while commodity and EM currencies have rebounded slightly versus the USD on the back of higher equity and oil prices.
The Aussie was one of the best performers overnight after the recent decline ran out of steam at the 0.7300 level, which inspired some profit-taking after yesterday’s China CPI print. This came in steady at 2.3% while PPI rose 0.5% in April, slightly above consensus estimates.
The Aussie also gained some support from RBA watcher Terry McCrann whose recent article predicted the RBA will not move again in June. Long AUD/USD positioning is relatively light, so we may see some support for the Aussie if current risk sentiment stabilises.
Today, Australia’s Westpac Consumer Confidence Index for May came in at 103.2 versus 95.1 previously. The MoM number is at +8.5% versus -4.0% previously. Westpac said that that the dominant driver in this boost of confidence was the easing by the RBA. This was the largest increase in almost six years.
But generally, it certainly feels the market is about to enter a mid-week nap phase as the start of the week has failed to provide any clear direction in the markets. As such, traders are likely to sit tight until Friday’s US retail sales report which might provide some direction. Fingers crossed.
But just as traders get comfortable, Moody’s Investors Service says that Australia’s four major banks face a slowdown in earnings this year
“More difficult operating conditions have become prevalent over recent months, resulting in a sharp rise — from an exceptionally low base — in large, single-name loan impairments in the banks’ corporate portfolios,” says a Moody’s Senior Vice President.
This shot across the bow was the likely catalyst for the Aussie sell off post-Westpac consumer confidence, and is weighing negatively on regional risk sentiment with USD/JPY now 50 pips lower as the Nikkei is down 1.5 % on this news.
The Kiwi
Today’s New Zealand financial stability review failed to ignite NZD/USD lower, a move that traders were positioning for. Instead the kiwi traded higher after the RBNZ Financial Stability Report. While the report maintained a dovish outlook, there were no new policy measures included in the statement. Markets had been looking for any changes to macro-prudential policy to counter house price inflation across the country.
The Yen
The yen was the worst performing currency overnight due in part to more determined intervention threats from Japan. But given this rhetoric is nothing new the move higher in USD/JPY is more about market positioning and profit-taking. Especially as there has been zero news to influence a policy change. With little in the way to drive markets in these dog days of summer, yen weakness may have some more legs. Traders are likely to opt to reduce some arguably overextended long yen positions after last week’s lower-than-expected US jobs data failed to trigger more USD weakness.
Also, there was a 2.15% rise in the Nikkei thanks in part to a weakening yen. Keep in mind both the Yen and Nikkei feed off one another. But until some new catalyst unfolds I expect USD/JPY will remain hostage to broader risk moves ahead of Friday’s US retail sales.
The Yuan
Ongoing concerns about recovery and runaway debt continue to weigh on traders’ sentiment. We’ve seen an increase in the onshore/offshore gap widen greater than 200 pips but there are clearly two dynamics at play. Onshore traders are playing the fixing gap and subsequent momentum, while offshore bets are starting to increase short bets on CNH anticipating more tepid economic data from the mainland while the USD begin to assert itself once again.
PBOC Fix 6.5209 vs 6.5233
The Ringgit
The USD/MYR is trading in line with EM movements and yesterday’s USD rally saw the MYR fall to its weakest point in two months and $ASIA was led lower by MYR. But with crude oil sentiment continuing to yo-yo, the near-term view will be dictated by oil prices and broader USD moves.
A bit better mood in USDASIA this morning with equities market in the green and oil futures firming above 44.50 levels as markets remain in consolidation.