APAC-Currency Corner

NFP Effect   

The Non-Farm Payroll (NFP ) rose by 215k, 10 K above market consensus While US ISM posted its largest gain in seven months. The March ISM was 51.8 versus 51.0 expected. Details showed a surge in new orders from 51.5 to 58.3. University of Michigan Survey: Improved from 90.0 to 91.0 versus 90.5 expected in the final March survey. While Friday’s data releases beat analysts forecasts, especially the  NFP bounce,  it will likely have limited impact on monetary policy.

Specifically, improvement in the workforce was hardly a surprise and with the policymakers more concerned with international concerns after Fed Chair Janet Yellen implied that ongoing global economic headwinds and lower oil prices posed a significant risk to the US economy, the news is unlikely to sway  Fed or Trader sentiment.  The Market continues to price in a 25 percent chance of a hike at the Fed’s June policy meeting, a 50 percent chance of a comparable move in September and a 60 percent possibility at the December meeting, according to CME Fed Watch. With many FX traders even  more bearish in their forward assessment, there is little solace for USD bulls  as   we’re likely to see  renewed pressure on the USD this week  as a dovish Fed is expected to remain  status quo for the foreseeable future

While it’s a relatively quiet US economic diary this week with Durable Goods and non-manufacturing ISM  the leading US releases, Fed Speak will again fill the airways.  The March FOMC  Minutes will be made public Thursday, and in days before, there’s  a mass of FOMC  Members hitting the wires and  If we have learned anything from recent  Fedspeak, its that FOMC members are more likely to confuse rather than defuse the current Fed Policy debate. As for the FOMC minutes themselves, traders are expecting   Dovish  Yellen Redux.

Aussie

While the Aussie initially gapped lower after the better than expected  NFP report,  AUDUSD came  roaring back to pre-payrolls levels despite a worrisome sell-off in WTI and Brent markets as crosscurrents in commodity prices  emerge.

On Friday,  Oil markets sprung a gusher as traders dialled in on comments from Saudi Arabia Deputy Crown Prince Mohammed bin Salman, who said “the country will only freeze output if Iran and other major producers do so.”. These comments fuelled traders speculation that the anticipated boost to oil prices from this month’s upcoming OPEC meeting may not be readily forthcoming.

This week the RBA could shake things up at Tuesday significant RBA cash rate decision . . However,  it’s more likely the RBA keeps policy on hold despite the fact Governor Stevens is likely feeling increasing pressure to pull the trigger after  Aussie rocketed above .7700  level amid concerns recent  Aussie strength could smother the current economic recovery in Australia. The ASX RBA Rate Indicator, which shows market expectations of a change in the Official Cash Rate (OCR)  is only pricing in a 7 % likelihood of an RBA rate cut.

The Aussie dollar has appreciated over 12% this year as Traders continue supporting the Aussie on the back of improving economic fundamentals while Foreign Investors continued flocking to the Aussie  Carry Trade in 2016. The Aussie has been the beneficiary of  Global Central banks moving into negative interest rate territory; weakening their currencies in an attempt to give both domestic economic activity and inflation a bounce.

On the hard commodity front, while Iron ore continues to move lower from  March peaks, there’s also signals the latest copper rally is hitting the skids. Unlike irrational exuberance expressed by investors chasing the recent commodity rally, it’s worth noting that miners seem to get what investors have trouble grasping Specifically,  in the words of Freeport -McMoRan, the world’s biggest copper producer, ” the market remains out of balance with too much supply.” The structural supply imbalances should likely dictate a drop in price especially if demand from China remains flat.

RBA surprised aside; there’s a growing consensus among traders that we should expect renewed dollar weakness( AUD strength)  in April.  But commodity bloc traders need to be ever so vigilant for a downturn in WTI as hopes of a production freeze remain in peril after recent Saudi comments. Also, with the hard commodity rally fizzling it equally important to keep and eye on Iron ore and copper prices.

A muted open today as Aussie traders sit tight ahead of the February retail sales  On the back of weaker retail sales report 0 versus .4 expected and the Aussie dropped  15 pips, but the data is unlikely to have any impact on RBA rate decision. With that in mind, the Aussie should  remain well supported on dips

USDJPY

USDJPY continued to struggle to end the week near the 11.60 level. However, it has little to do with a  with Yen strength but rather haven appeal and the general USD weakness which has as money managers continue to reduce bullish bets on the USD. Interestingly, the most outlier speculative positioning in  CME futures trade is  JPY long with long gross positioning at 82.8K contracts ( As per the commitment of traders a published by the US commodity futures trading commission

The Yen is up 7% versus the dollar this year, but traders need to be extremely cautious of a potential a massive unwind of speculative best as Yen flows may not be justifying this extreme positioning with foreign investment in Japanese stock and bonds runs negative while local investors pile into foreign bonds.

In the meantime, JPY will remain supported on the back of Japans current account surplus as haven flow drive the currency.

USDCNH

Expecting relatively quiet trade  with  China and Hong Kong on holiday so I would expect USDCNH to trade on the back of broader USD sentiment

There is still some overhang from  Fed Chair Yellen’s reiteration of dovish stance, and some traders have continued to trim or even abandon USDCNH exposure.

ASEAN Currencies

Institute of International Finance reports estimated that Emerging Market Flow jumped to a 21 month high in March of 36.8 bln with and estimated tranche of 17 + Bln flowing into Asia Bonds and Equities, making it the strongest showing since mid-2014. Very positive sign for the region.

MYR.

Despite the better than expect NFP and a slide in oil prices on the back of comments from Saudi Arabia Deputy Crown Prince Mohammed bin Salman, who said “the country will only freeze output if Iran and other major producers do so.”, Despite the move lower on WTI   USD upticks were sold, as  Foreign Investors continued to show the healthy appetite for MYR as the Ringgit continues to show less sensitivity to downside moves in Oil prices

INR

India policy makers are meeting today, and the market consensus is for a .25 % rate cut although an outside chance of a .50 % cut. However traders will be eyeing is to what degree will RBI’s forward guidance indicate deeper price reductions in the future.

SGD 

The Singapore Dollar is opening in  1.3485 area in reticent markets. Unlikely to see too much interest the band ahead of MPC, but the market is still waiting for an announcement date.  In the meantime expect the USDSGD to trade on broader USD moves  within 1.3400-1.3550