Asia Summary and Highlights 6 June
BOJ's Nakamura says inflation may not reach 2% from FY 2025 on if consumption weakens
Asia Session
The USD is trading broadly weaker on Thursday's Asia session despite U.S. Treasury Yields recapture some lost grounds. BOJ's Nakamura says inflation may not reach 2% from FY 2025 on if consumption weakens and highlights the pass-through of wages to inflation remains weak. This comment maybe the painful truth and aligns with our core view of lower wage-inflation translation but in a short to medium run, Japanese CPI could stay afloat at 2% despite of such. While 10yr JGB yields continue to drift below 1%, USD/JPY is dragged by weaker dollar to trade 0.33% lower at 155.57.
The Australian trade balance came in stronger than expected but it is because of weak export and weaker import. The contraction in import points to weak domestic demand and the slip in export will be as impactful towards the Australian economy as it is one of the pillars of its economics strength. Regional equities are mostly positive expect Chinese down less than 0.1%, U.S. major indexes are in the green. AUD/USD is trading 0.22% higher at 0.6662, NZD/USD is trading 0.05% higher at 0.6196 while USD/CAD slipped 0.11% to 1.3678 as oil gains 30 cents. Else, EUR/USD up 0.18% and GBP/USD up 0.07%.
North American session
The USD saw early losses but bounced on a stronger than expected May ISM services index of 53.8, rebounding from a weak 49.4 in April. After some choppy late morning trade the USD gave up some of its advance in the afternoon. USD/JPY dipped below 156 early but bounced back after the data getting close to 156.50. EUR/USD found sellers below 1.09 and buyers above 1.0850 ending in mid-range. EUR/GBP slipped to .85 as GBP/USD returned to near 1.28 after slipping to 1.2755, but EUR/CHF gains extended to .9710. USD/CHF peaked near .8950.
USD/CAD bounced above 1.27 on a 25bps BoC easing. The move was as expected but comments from BoC Governor Macklem that more easing could be expected if inflation progress continued were noted. The US data extended the move to 1.2740 but the afternoon saw a move back below 1.37, as the USD lost momentum generally leaving USD/CAD with only modest gains. Macklem also stated that the path of rate cuts was likely to be gradual.