Stabilizing UST yields month to date gives investors more confidence in shorting the USD, but growth downgrades on covid-related setbacks in EM could slow this move.
The USD sell-off itself is evolving from an EM-focused move to one that’s encompassing more G10 currencies.
Having underperformed its G10 peers from Apr. 1-16, GBP is playing catch-up versus the USD and is on the longest winning streak (6 days) since July 2020. And could be here to stay ss a catch-up theme too early April underperformance looks convincing. The AUD is attractive in the near term, having lagged broader G10 moves vs the USD. Recovering industrial metal prices and robust trends in US equities – two historically important AUD drivers – should support the currency. Indeed, front-month copper prices are up 6.7% month to date, following a 5.7% decline in March and only 1.1% off 2021 high.
China Keeps LPR Steady
China held its April 1-year loan prime rate at 3.85% and 5-year loan prime rate at 4.65%, as widely expected. This was the twelfth month in a row that the Chinese central bank kept the LPR rates on hold after a rate cut in April 2020. This follows the steady interest rate on the PBoC's 1y MLF, widely seen as an LPR anchor. In its Apr. 15 MLF, the PBoC held the interest rate at 2.95%.
A steady LPR fixing was in line with market expectation as China reported a record Q1 GDP growth of +18.3% y/y. While growth was strong, it was still slightly below market forecasts, but the authorities are unlikely to take any sharp turns in policy stance for the time being.