General October 12, 2020 / 04:49 am UTC

Asia Highlights - Monday, 12 October 2020

By Ken Loong Hoe

PBoC’s decision to reduce the cost of shorting CNY lifted USD and weighed on AUD. US equity futures opened lower amid lack of progress on US stimulus but dip has been retraced. JPY remains broadly firmer.

US Overview

Signs that Trump was backing down in stimulus negotiations buoyed equities and weakened the USD. 


US Highlights

- Canada Sep employment rose 378.2k vs 150k exp, unemployment fell to 9.0% from 10.2% vs 9.8% exp. 


- Fed’s Evans said should be more talk about bond buying. 


Currencies

Friday saw consolidation for the USD versus the majors initially, but USD losses against commodity currencies. The commodity currencies gained momentum after stronger than expected Canadian employment data, but with AUD/USD breaking above .72 AUD outperformed CAD, AUD/CAD touching .95.


The week saw increasing conviction that Biden will win, which is regarded as good for global trade and China. In turn this is helping buoy G10 and EM commodity currencies. This trend probably has further to run, as fund managers position for a change in the White House. 


The majors saw a weaker USD in North America, with EUR/USD pushing through the key 1.1800 level. Though the White House has done a U turn to back large scale stimulus, Republicans in the Senate are less willing and this tempered expectations of a breakthrough in the FX market. Even so, the multi week bias remains for the EUR to break higher against the USD, as a Biden presidency is seen as risk positive and hence USD negative.


USD/JPY slipped with USD yields after Fed’s Evans raised hopes for more QE though a modest correction came on the news on a report that the White House had increased its stimulus offer. EUR/JPY remained higher on the day.


Weaker than expected August UK GDP saw little initial response. EUR/GBP later moved above .91 but gains were erased as USD weakness helped GBP/USD above 1.30. The market remains poised for volatility with the Oct 15 deadline fast approaching.


Asia FX and News

- Democrats and Republicans Dismiss Trump’s Stimulus Offer ~ CNBC

- China Aims to Cool Yuan’s Surge by Reducing Cost of Shorting

- ECB Lane: Exchange Rate Just One Issue Affecting Inflation ~ WSJ

- Johnson Tells Merkel That Significant Gaps Remain in Talks

- The key weekend news, from a FX perspective, is PBoC’s decision to reduce the cost of shorting CNY.lowered the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0%, effective from October 12, after CNY rallied to a 17-month high of 6.69 against USD on Friday. 

- USD was the greatest beneficiary, though changes are still fairly moderate. JPY recovered against USD before the European morning. USD/JPY fell to around 105.40. JPY crosses also fell even though US equity futures rebounded from the soft start amid a lack of progress on the US stimulus package.

- AUD/USD was the laggard among G10 amid CNY weakness, though losses in both CNY and AUD were not significant. AUD/USD still safely above 0.72. NZD/USD hovered near its Friday’s high, steadied after the opening dip. EUR/USD and GBP also steadied following dips on the open.


Data


JP: PPI (Sep) -0.2% m/m (Mkt: 0.05 Prev: 0.1)


JP: PPI (Sep) -0.8% y/y (Mkt: -0.5 Prev: -0.6)


JP: Core Machine orders (Aug)-15.2% y/y (Mkt: -16.7 Prev: -16.2)


NL: Trade Balance (Aug) 3.8bn (Prev: 6.)


Still to be released


21:45 GMT - NZ: Food Prices (Sep) % m/m (Prev: 0.7)


Events


11:00 GMT – EU: ECB President Lagarde Speaks at IMF Event


14:00 GMT – UK: BOE's Haskel speaks


16:00 GMT – UK: BOE's Bailey speaks


16:45 GMT – EU: ECB Executive Board member Panetta Speaks


20:00 GMT – NZ: RBNZ's Bascand Speech

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