APAC Currency Corner – China Retail Surprise

Aussie dollar resilient

The Aussie received support from yesterday’s Australian employment data. The uptick in price action came despite what seems to be an “ annual “  pre-budget debt rating warning issued by rating agencies .  .

The strong employment print has taken some sting out of near-term rate cut expectations. But despite some constructive price action, the pair failed to extend gains convincingly above the critical .7725 level. The resistance is likely due to the proximity of high-risk China GDP data due out this morning.

After back peddling yesterday when debt rating agencies highlighted that the Australian debt burden could weigh on the country’s AAA rating.  The Aussie turned on a dime on the jobs report, and there was no looking back on the way to another test of .7700. But momentum kicked into gear in London as Aussie buying exploded when commodity prices spiked higher. Primarily driven by surging oil prices, amidst a very buoyant risk-on environment. A sure-fire recipe for a bullish Aussie.

 

Kiwi unsettled

The AUDNZD finally broke out of its two-week consolidation pattern with the Aussie in high gear, boosted by the strong jobs number.  ON the flip side, Traders are less than enthusiastic about the Kiwi heading into the RBNZ cash rate decision later this month as rate cut expectations rise.  The Aussie-Kiwi cross put on a furious display moving from 1.1070 to +1.1225.

There’s a growing, but certainly not conclusive, t consensus among dealers that the RBNZ will cut rates in both its April and June meetings to offset domestic economic slack amid growing concerns about tepid inflation expectations. With that in mind, Monday’s New Zealand CPI will likely attract a fair bit of attention this time around.

 

The RBA Financial Stability Report points to a system that ‘s in good shape  with slight concerns  over near-term risk for housing developers and the- fear that global economic headwinds could spill over into the domestic economy

A mixed bag ,  but  negligible impact on the currency

Asian Currencies

USDCNH

Pboc sets Yuan midpoint at 6.4908 vs. 6.4891 weakest setting since March 29. The Yuan continues to weaken post fixing as a charge in USD strength weighs negatively on the RMB complex. But  USDCNH continues to trade well within well-referenced expectations. MAS BOJ  hogged the limelight overnight, so focus remains off Mainland policy

Today’s GDP came in at 6.7 % right on market consensus   which will likely be viewed in a positive light by the market give the propensity to expect the worst for China economic data

However , the uptick in Retail sale 10.5 % vs 10.4 % will likely give a boost to risk sentiment and we should see  regional and global equity markets respond in kind

USDJPY

The market has paused for thought and  turned mildly bid in early APAC trade on heightened intervention fears after the Bank of Japan’s Kuroda called Yen’s recent rise as “excessive.”  The shift in sentiment comes on the heels of an overnight session which saw renewed selling pressure on the USD  after a softer-than-expected US CPI print and reports of an earthquake in Japan.

There’s also a minor risk event with G20 finance ministers and central bank governors meeting in Washington and airwaves continue to run heavy with BoJ intervention rhetoric.  However, with no major news events on tap, we will likely see USDJPY taking cues from the Nikkei , but has the makings of USD squeeze heading into the weekend

 

Singapore dollar – Traders caught short

The unexpected policy shift from the Monetary Authority of Singapore (MAS) had some real bite in the currency markets with the SGD the worst performing currency overnight. The currency moved +100 pips after the “surprise”, and it had a knock-on effect on regional currencies which also capitulated after the sharp drop in SGD.

The MAS is usually the most forward-looking policy makers in APAC, and the move is a warning shot across the regions as their outlook concerns all central bankers in the region. Traders were likely caught short USDSGD based on current positioning across the Asian basket. Which may partially explain the voracity of the USDSGD move as new positions along with stop losses overwhelmed.

Fortunately for SGD, Singapore Q1 GDP came in a bit above expectations (1.8% vs. 1.6% expected) which halted the currency slide. However with economic growth expectations running low, and downside inflation risks increasing, I doubt this is the end of MAS easing cycle.

USDMYR

 

I expect the Ringgit to trade within a tight band given the proximity to the Saudi-Russia weekend oil supply meeting. There’s also the issue of oil chopping around after a mixed ‘’Oil Patch’’ market report from the International Energy Agency (IEA) on Thursday meaning there’s no distinct motivation to drive sentiment so look for the USDMYR to follow the broader USD movements today