HALISTER1: INSIDE ASIA: Currencies Mixed as Region Absorbs Weak U.S. Data

INSIDE ASIA: Currencies Mixed as Region Absorbs Weak U.S. Data

(Bloomberg) -- Asian currencies mixed as dollar recovers some of Friday’s payroll-driven losses, with yuan, yen and Aussie among decliners, while ringgit and rupiah climb.
  • EM currencies staging relief rally as markets factor out imminent U.S. rate hike, says Stephen Innes, a senior trader at Oanda Asia Pacific; sustainability uncertain given considerable local headwinds; risk-off sentiment may filter back into markets unless strong China economic data seen this week
    • NOTE: Probability of June hike now 4.0% vs 22.0% ahead of Friday payrolls data; July now only 27.0% vs 54.8%
  • Offshore yuan falls 0.40%, most since May 18, while onshore yuan declines 0.20%; sharp gains Friday after U.S. data mean CNY remains around 300 pips off 5-yr low hit in Jan.
    • PBOC strengthens CNY fixing 0.45%, most since April 29 but still less than some expected; prompted broad-based USD/CNH buying, according to traders
    • U.S.-China Strategic & Economic Dialogue begins in Beijing; President Xi says the two nations should have more dialogue on macroeconomic issues; progress made in bilateral ties, including cyber and military cooperation
    • China must improve monetary policy communication, U.S. Treasury Secretary Lew said Sunday, ahead of SED meeting; progress has been made on exchange-rate debate
    • PBOC methodology adjustment to banks’ RRRs means they will from July 15 be calculated based on average daily deposits over a period rather than period-end rate
    • May FX reserves data tomorrow could reveal PBOC restraint, analysts say
  • Aussie drops, bonds surge at open in response to smallest U.S. jobs gain in almost six years; small leveraged accounts selling AUD/USD under 0.7366 and leaving buy stops above 0.7402 May 11 high, according to Asia-based FX trader
    • RBA won’t cut tomorrow, preferring to wait for 2Q inflation data in July, according to CBA note today
    • NZD/USD selling led by leveraged and macro accounts, Asia-based FX trader says
  • Japanese yen falls 0.6% after strengthening to as much as 106.39 vs dollar following U.S. data; dollar gains Monday morning, with DXY rising 0.21% and BBDXY up 0.30%
    • USD/JPY may be supported by speculation of intervention and additional BOJ stimulus, says Toshiya Yamauchi, chief manager for FX margin trading at Ueda Harlow; however, intervention and monetary easing are unlikely; USD/JPY to test 106.00 on drop in Nikkei 225
    • Chief cabinet secretary Suga says govt is watching currencies closely and will take action when necessary
    • Prime Minister Abe’s LDP party has no reference to monetary policy in its campaign platform for election next month
    • Asashi poll shows cabinet approval rating rises 2 ppts to 45%; Yomiuri poll says cabinet approval rating flat at 53%
    • BOJ to hold third round of bond market group meeting on June 6-7
  • Indonesia’s rupiah advances as much as 1.0%, most since March 30, to 13,460 vs dollar; Bank Indonesia will issue looser lending rules in 3Q at latest, Gov Martowardojo said on June 3
    • BI likely to keep policy rate unchanged at next meeting following 75-bp cuts in 1Q, and instead focus on better monetary policy transmission and its interbank market, Goldman Sachs writes in June 3 note
  • Malaysia’s ringgit tops Asian gainers, rising as much as 1.4%, most since March 30; weaker U.S. data reduces chances of Fed rate increase and lowers outflow pressure in emerging markets
    • “I think the Malaysian ringgit will do quite nicely -- and other Asian currencies will do quite well -- in this environment where the dollar has got destroyed and market probability for Fed tightening has come back quite sharply,” says Chris Weston, chief market strategist at IG Ltd. in Melbourne
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Stephen Innes (OANDA Corp)
Chris Weston (IG Group Holdings PLC)
Toshiya Yamauchi (ICAP PLC)

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