- USDJPY 101.50-55 (USD 400m) 101.65-75 (USD 1.1 bln) 101.80-90 (USD 900m)
- EURUSD 1.3440 1.3450 (EUR 456m) 1.3475 1.3500 (EUR 688m) 1.3520-30 (EUR 670m)
- GBPUSD 1.6900 1.7000 1.7020 1.7095
- AUDUSD 0.9300-25 (AUD 735m) 0.9340 0.9400 (AUD 823m) 0.9450
- USDCAD 1.0680 1.0700 1.0725 1.0790 (USD 410m)
- NZDUSD 0.8600 0.8625 0.8640 0.8700 0.8740
- EURGBP 0.7800 (EUR 526m) 0.8000
- EURJPY 136.75
Forex trading headlines for Asia Thursday 24 July 2014
- Why did the NZD gap lower?
- Hello NZD. Please stay on the line, your tightening cycle has been placed on hold and will be resumed shortly (maybe March)
- New Zealand – June trade balance: $247m (vs. expected 100m)
- Reserve Bank of New Zealand rate hike – round up of analyst reactions (where to now?)
- RBNZ to intervene in the New Zealand dollar?
- Japan – Trade balance for June: Y -822.2 bn (expected Y -642.9bn)
- Moody’s says Australian housing market not yet overvalued
- Bank of America Merrill Lynch raises China 2014 GDP growth forecast to 7.4% from 7.2%
- Bank of Japan (BOJ)’s Shirai speech yesterday – headlines
- Japan – July Markit/JMMA Manufacturing PMI flash: 50.8 (prior was 51.5)
- China – HSBC/Markit Flash reading for manufacturing PMI for July: 52 (vs. expected 51.0)
- Moody’s: China cooling housing market biggest downside risk
I’ll skip quickly over JPY, EUR, GBP, CHF and CAD … not where the action was today at all (though USD/CAD caught a bid and did manage a 20 point or so gain during the timezone).
The session opened with eyes looking out over the South Pacific to New Zealand, where an announcement on monetary policy from the Reserve Bank of New Zealand was scheduled. The market was overwhelmingly expecting another rate hike, and they weren’t disappointed. What was surprising, though, was the shift in gear from the central bank re the outlook for further hikes. A pause was expected until December, and this would now seem to be the earliest it can happen, with the bank saying clearly it was time now to assess the impact of the recent rises. Make no mistake, though, the RBNZ is in tightening mode, not neutral and they will be looking for reasons not to hike – more details at the bullets, above.
The NZD was marked 80-odd points lower immediately on the announcement, with the less hawkish statement and also a ‘sell the fact’ response being labelled as the reason why. It managed a very small bounce from 0.8600 but is under there as I type, with suggestions now doing the rounds that the time is ripe for the RBNZ to intervene to push the currency down further (again, see bullets, above).
Meanwhile, AUD/USD drifted a little lower from very early highs, but jumped above 0.9460 on the HSBC China PMI release, finding sellers then ahead of 0.9470.
In the half hour or so leading up to the China data gold was sold heavily, to below $1300, where it stabilized somewhat but is back on session lows as I type. Oil traded quietly in a tight range.
Standard Chartered economist Stephen Green:
- The CNY1 trillion in Pledged Supplementary Lending (PSL) that the People’s Bank of China recently conducted in the market “smacks of quantitative easing”
- The funds which have been relent to China Development Bank are “deliberate and significant expansion of the PBOC’s balance sheet via creating bank reserves/cash”
- He likens the exercise to the UK’s Funding For Lending scheme
- Says that the CDB’s balance sheet reflects the transfer of funds, even if the PBOC’s doesn’t
- The CNY1 trillion reported — no details confirmed by the PBOC yet — will end up in the broader economy, will boost demand and “sends a signal that the PBOC is in the mood for quantitative loosening”
- He says that the impact will depend on whether the details are correct and if all the funds have been transferred already, or if it’s just a jumped up credit facility that CDB will be allowed to tap in stages
OK, cards on the table … I’m a sceptic.
But, here’s BoA Merrill Lynch’s argument for the Reserve Bank of New Zealand intervening in the New Zealand dollar ….
I”ve reformatted it a bit to make it more readable:
Whereas previously we believed that not all of the criteria was met and it was considered more jaw boning by the RBNZ’s Wheeler , if we have a look at each criteria now it paints a very different story.
- The NZD is exceptionally high or low – TICK – NZD has traded to 0.8835 in July 2014 a whisker away from the all time high of 0.8842 in August 2011. In addition the TWI traded to an all time high of 82.03 in July 2014.
- In the RBNZ’s assessment, the level of the exchange rate is unjustified by economic fundamentals – TICK – they acknowledged that in today’s OCR with the comment “With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable”
- Intervention will be consistent with RBNZ’s Policy Target’s agreement (PTA) – TICK – The implication the RBNZ is pausing in rates would suggest that the inflation target is consistent with the PTA which is basically targeting the mid point of a 1-3 % inflation band. Last print of CPI YoY came in at 1.6 % .
- Market conditions are opportune and there is a material prospect of success, i.e. influencing the exchange rate – TICK – The RBNZ has acknowledged they believe the currency has the potential for a significant fall. The market is very long NZD due to the carry trade build up – … NZD/JPY chart shows we are starting to break lower
Like I said, I’m a sceptic … but,
- Maybe they can give it a nudge and do a good bit of damage
- Graeme Wheeler is a clever chap
- Maybe I’m wrong
- Maybe the market is going to take a look at how heavy the NZD is and sell it anyway
- This sort of talk is NOT confined to BoA/ML … its doing the rounds
- China cooling housing market biggest downside risk
- China risks remain weighted to the downside
- China’s current boost from net exports is temporary
- Imports to subtract from growth in coming months
Headlines on Bloomberg – they quote a Moody’s report from yesterday (Bloomberg reporting that’s its yesterday’s Moody’s comments).
“No, ****head, it’s your new subwoofer.”
So said the IMF to me when I asked them that question in the post headline.
Adam was all over it last night: IMF says Fed could keep rates low past mid-2015 if outlook holds
- IMF cuts 2014 US forecast to 1.7% from 2.0%
There’s more on the IMF’s cut to the US 2014 growth forecast at the Wall Street Journal. They say:
- issued its second downward revision for the U.S. economy in two months
- Cut its growth expectations for 2014 to 1.7%
- Warned that unrealistic market expectations could spell losses for investors
The cut puts the fund’s forecast below the Federal Reserve’s recent downward revision, makes it the IMF’s weakest annual forecast since the end of the 2009 recession
- Reflects the sharpness of the economy’s first-quarter contraction, but also illustrates lingering unease over the soundness of the U.S. recovery
“We still see there’s a lot of slack in the economy,” said Nigel Chalk, deputy director of the IMF’s Western Hemisphere Department
More at the (gated) link: IMF Cuts U.S. 2014 Growth Forecast to 1.7%
Apparently this is a good track for testing out the subwoofer (though, other suggestions very much welcome )
CHINA HSBC/Markit Flash reading for manufacturing PMI for July 52.0
- 18-month high
- expected 51.0
- prior was 50.7
AUD pops higher on the better than expected result out of China (hitting the first levels of larger sellers)
Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC:
- The HSBC China Manufacturing PMI rose further to 52.0 in the flash reading for July.
- Both new orders and new export orders expanded at a faster pace than in June.
- The employment and prices sub-indices also improved.
- Meanwhile, stocks of finished goods contracted at a slower pace.
- Economic activity continues to improve in July, suggesting that the cumulative impact of mini-stimulus measures introduced earlier is still filtering through.
- We expect policy makers to maintain their accommodative stance over the next few months to consolidate the recovery.”
JAPAN – Markit/JMMA Manufacturing PMI for July – this is the preliminary, ‘flash’ reading,
- prior was 51.5
This is the Japan reading, the market focus is the China flash reading, which is coming up at 0145GMT
Amy Brownbill, Economist at Markit:
- Japanese manufacturers’ new orders remained in growth territory for the second month running, while there was a rise in new exports for the first time in four months
- These weren’t enough to prevent output stagnating, although this most likely reflects a little payback from the solid gains seen in June and the on-going unwinding of the impact of the hike in sales tax earlier in the year
- Looking through this noise therefore remains a challenge, but we note payroll numbers rose again suggesting manufacturers retain some positive forecasts for the coming months.
Yen not doing a lot on the release.
HSBC/Markit Flash reading for manufacturing PMI for July
- expected is 51.0
- prior was 50.7
- Prior close 6.1983
- Overnight repo opened at 3.25% (yesterday’s close was 3.3%)
- 7-day repo has opened at 4.01% (prior close was 4.60%) … liquidity still tight … traders saying PBOC is unlikely to conduct repos (drain) today
Added: PBOC is injecting 18bn yuan into the system for the week (injected 17 bn yuan last week)
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