After a relatively uninspiring Asia session yesterday, equity markets returned to recent form overnight after the Senate Budget Committees stamped their approval on the Senates tax plan.
Also Financial’s hit a high note during Jerome Powell’s testimony to the Senate Banking Committee when his comments regarding “easing regulatory burdens while preserving core reforms.” put a huge smile on Wall Street Bankers faces and an even broader one on their shareholders.
Initially, the dollar moved higher lifted by higher US yields after Senate Budget Committee signed off the bill to move to the Senate floor for a final vote. But with Powell towing the current Fed’s dovish narrative of gradual rate hikes in his earlier Senate confirmation the dollar edge dulled quickly against most G-10, but USD/JPY remained buoyant on improving risk sentiment.
The festivities were briefly interrupted after the US Pentagon confirmed that an NK missile launch was “probable,” made around 13:30 EST. But unlike the previous North Korea missile tests, investors haven’t sounded any alarm bells and in fact, quickly faded the initial knee-jerk.
The British Pound
Sterling is being lashed around on the latest Brexit headlines. The Pound ripped higher after a deal over the soi-disant ‘Brexit bill’ which includes a purported EUR60bn financial settlement according to sources on both sides was agreed on balance. This headline is fantastically positive news for the beleaguered pound which was sold early in the day after Bank of England governor Mark Carney’s depressing warning of potential Brexit fallout. While Carney candid talks my hold true, the financial settlement should pave the way to possible breakthrough in negotiations in December overcoming investors biggest fears, a hard Brexit
The New Zealand Dollar
The Kiwi moved higher in early trade on an unexpected decision from the RBNZ to ease its LVR restrictions. The move proved to be short-lived and was quickly sold given the tacitly backed stronger USD dollar narrative this morning
The Euro
The Euro failed to break convincingly higher on Monday or Tuesday, and that alone would have caused traders to unwind some overextend long EUR positioning. But the single currency got caught up in headline wash after Brixit positive news caused EUR/GBP to crater, and then Ireland’s deputy PM Frances Fitzgerald is reported facing calls to resign over a controversy involving a police whistleblower. Mind you, the Irish edition of EU political risk should be inconsequential to the Euro as have all the other politically inspired moves. But last nights sell-off is as much about Traders getting nervous about the crowded trade mentality in less than ideal liquidity conditions and cutting quickly when the trade set up goes sideways.
The Japanese Yen
Its been a real chop feast this week as the market digests noise about BoJ normalisation, US Tax Reform, month-end rebalancing and of course, the North Korea threat. It makes for difficult trading conditions, however, buying the USD/JPY dip still looks attractive on the positive risk outcome from US tax reform.
The Australian Dollar
In listless trade, the Aussie dollar is slightly lower as the currency remains range bound amidst the market’s competing priorities.
Indeed all the talk about China destabilising markets into year end is not helping sentiment as the Aussie would be the go-to G-10 hedge against China market fallout.
The Chinese Yuan before the Fix
Month end and year end USD demands are creeping into the picture keeping a floor under the USD/CNH. Not much early action despite the moves other regional pairs so I suspect the latest equity market bobble and bond market sell-off is too fresh in traders minds to take on more Yuan risk.
Energy Market
Oil traders remain incredibly jittery ahead of Thursday’s OPEC meeting. And while we can never be sure what’s evolving behind closed doors, market whispers suggest Saudi Arabia and Russia are not yet fully coordinated which indicates the balance of risks remain skewed lower.
·Asia FX
The Korean Won
The market woke up when London walked in eager to buy Asia FX. The move was briefly interrupted by news that North Korea has tested another missile.But the KRW reaction is very very telling as USD/KRW NDF barley moved from 1082.70 to 1084.50 before USD offers returned as geopolitically risk desensitised investors view little chance of escalation and are using these opportunities to add risk.
On the broader KRW rally that began in earnest in London, some were attributing the move to Yonhap News Agency reports that China has eased the ban on group tour packages bound for South Korea which was put in place after the deployment of the THAAD missile system. But the move has more to do with the grand exit of long USD geopolitical risk hedges ahead of Thursday BoK interest rate decision
Traders will be on the edge of their seat awaiting the BoK rate hike and more specifically what tone the governor will take. There’s a high chance for dovish interest hike expressed during the press conference to slow down the pace of the Won appreciation.
The Market continues to express its bullish Asia FX views through the Ringgit which rallied yesterday in tandem with regional peers.
The Yellen-Esq dulcet dovish tones from incoming Fed Chair Jerome Powell portend well for the Ringgit. And while the USD, more so USD/JPY, could bounce higher on a favourable tax reform improving global risk sentiment, the bounce in global equity markets should play favourably in the region and offset higher USDJPY
The Indian Rupee
A strong showing for the Rupee yesterday bolstered by investment inflow.The dovish Fed rhetoric play’s well for the Ruppe and looks very favourable after breaking through 64.50 level. Sentiment remains a guardedly optimistic on the Rupee in conjunction with other Asain pairs. However, given the Rupee susceptibility to rising oil prices, suspect traders will be less inclined to push USD/INR lower until after OPEC clears the airwaves.