APAC Currency Corner – Bumpy ride this week

We have a very heavy central bank dominated calendar this week, with the Fed, RBNZ, and BoJ all in action. While most of the focus will centre on possible policy action from the BoJ, traders will be looking for forward guidance from both the Fed and RBNZ. So strap in tight we are likely in for another very bumpy ride this week.

JPY

ON Friday, the USDJPY market veered down a one-way street after reports leaked that the BoJ was deliberating negative rates on its lending facility. The theory behind the unprecedented move is that it would not only support domestic bank profitability but that there would be some flow through stimulus effect on the economy.  Speculation over the move sent the Yen spiralling 2% as traders interpret the move as opening the door for the BoJ to move further into the negative rate. This shift in policy is a move that seemed unlikely after the BoJ policy dud in January.

Apparently, the BoJ is looking to get the biggest bang for its buck next policy decision. Traders are now betting the BoJ will come out firing on all cylinders unleashing the stimulus package of all time at this week’s BoJ meeting. With that in mind, anything short of a double-barrelled “bazooka style stimulus package” may be a huge short-term disappointment for the USDJPY bulls. In early trade, USDJPYis trading off last week’s highs as WTI is moving lower in early trade, which is weighing on risk sentiment.

BoJ rate cut euphoria is waning this morning as there has been a little follow-up from Japanese officials over Friday leak.

Aussie

A slow start to the week with Down Under celebrating ANZAC day while the rest of the market prepares for a hectic week.

While the Fed is the primary external driver, let’s not overlook the key CPI reading on Wednesday, which will likely influence short-term direction. A firmer print would weigh against RBA rate cut while the opposite holds true for a downside miss.

In early trade, the Aussie has been glued to the  .7700 level trading either side in directionless markets.  The lack liquidity is not helping matters with most Aussie trader sidelined due to ANZAC day.

Kiwi

In New Zealand, the RBNZ will take centre stage with the market only pricing 8bps of cuts. However, given how poorly the Kiwi traded towards the end of last week, it’s clear traders are positioning for a very dovish accompanying statement laced with dovish rhetoric while maintaining a definitive easing bias. However, we have to weigh current momentum versus the ongoing risk rally, the surprisingly strong gain in whole milk powder prices last week and the slightly better than expected economic data points last month. Should the RBNZ not come across as dovish as anticipated, we could see a massive bailout of short current bets and the Kiwi swinging significantly higher.

USD

While the Fed is widely expected to sit tight at this week’s policy meeting, traders will be keeping a close eye on the accompanying statement. Currently, Fed fund futures are pricing in virtually no chance of a move in April with and implied 18% chance of a move in June.  Currently, the market is at odds with the Fed’s anticipated trajectory with traders only pricing in one rate hike in 2016 vs. the Fed’s guidance suggesting two rate hikes. Traders have been making a great living betting against the Fed in the past 12 months and while I don’t expect that to change there are  shifting global dynamics that might change some Fed rhetoric. While the improving global economic landscape looks encouraging, it’s incredibly fragile while recent domestic US economic data has been less than supportive of a rate hike. Specifically, retail sales continue to disappoint, and both CPI and PPI data prices came in below expectations. Unless there’s a clear cut improvement on both domestic inflation and growth, coupled with solid concrete improvement in the global economic landscape, it’s likely the Fed will err dovish through the second half of 2016.

OIL

WTI climbed nearly 9% last week thanks to high gasoline consumption in the U.S and increasing signs of declining production around the world. Minister of Petroleum Bijan Zangeneh says Iran will support any initiative to stabilise the oil market after recent talks in Qatar failed to freeze production.  Zangeneh said a meeting between OPEC and non-OPEC producers in Doha was a “good step.” Regardless of the news flow, WTI is trading lower this morning on the back of stronger dollar and looming FOMC.

USD/ASIA

The ASEAN basket sentiment is shifting on external factors as both BoJ and the FOMC dominate traders’ psyche. The market is anticipating some monetary stimulus from the BoJ this week and, while the  Fed is widely expected to remain on hold, there is some concern it will adopt a more hawkish stance.

CNH

The USDCNH  moved through the 6.51 handle before Pboc in line with Fixing expectations.

This morning Pboc sets Yuan Mid-point at 6.5120 vs. 6.4898

We’re in for a very busy week for the USD, and which the broader greenback sentiment will dictate USDNCH direction. But in early trade, we see some short USDCNH positions unwind ahead of this event filled week as concerns about domestic equity markets after Pboc hinted less stimulus would be forthcoming. Also weighing on sentiment is possible to shift in Fed forward guidance.

Also, traders  will be looking at this week’s Manufacturing PMI data for a gauge of domestic economic activity; traders are expecting  a rise to 50.5 in Apr

USD/ASIA

The ASEAN basket sentiment is shifting on external factors as both BoJ and the FOMC dominate traders psyche The Market is anticipating some monetary stimulus from the BoJ this week, and while the  Fed is widely expected to remain on hold, there is some concern, however unlikely, the feds will adopt a more Hawkish stance.

 

MYR

There’s chatter the Malaysia Prime Minister Najib Razak’s office will name new central bank governor this week, its

 

ON the currency front, the markets are very jumpy moving on shifting oil sentiment while uncertainty over FOMC is weighing on the regional basket.