Asia Summary and Highlights 6 Feb

Asia Session

The RBA meeting on Feb 6th kept rates on hold at 4.35% as per our forecast. The RBA also left doors open for further tightening and continue to suggest data dependency to lead the future path. The key forward guidance statement of "Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks." has changed to "The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.". While market participants are reading such change in forward guidance to be hawkish, the forward guidance seems to only suggest data dependency remains and door remains open for tightening. We do not see the RBA to hike further because the room to balance between economics growth and inflation dynamics are minimal. The AUD/USD got a shot in the arm from regional sentiment pumped on supportive headline from the Chinese government. AUD/USD is 0.41% higher at 0.6509, NZD/USD is also 0.26% higher at 0.6069 while USD/CAD slipped 0.19%.

The Japanese December Labor cash earning has improved from 0.2% in November to 1%. Despite it is still far from the 2% "sustainable" level, it is good enough for market participants to hope for accelerating wage growth after the spring wage negotiation. Yet, household spending remain depressed for negative real wage restrains household balance sheet.  Both the U.S. Treasury and JGB yields retreated across the curve. USD/JPY followed broad USD movement to trade 0.19% lower at 148.39. Elsewhere, EUR/USD is up 0.07% and GBP/USD is up 0.11%.

North American session

The USD extended its gains in North America, supported by UST yields, particularly after a stronger than expected ISM services report, the headline rising to 53.4 from 50.5 and prices paid to 64.0 from 56.7. Comments from Fed’s Kashkari seeing the Fed having scope to wait before easing backed the message of Powell’s weekend comments though dove Goolsbee would not rule out a March easing.

USD/JPY rose as far as 148.89 and EUR/USD fell as low as 1.0723 before modest corrections, the EUR seeing more of a recovery than the GBP as EUR/GBP rose to .8570. While equities saw early weakness fade UST yields remained high, limiting the size of the USD move off its lows. The Fed’s quarterly survey on bank lending practices showed fewer tightening standards than in Q4.