Asia Summary and Highlights 25 July
USD/JPY down another percent as risk reverse
People's Bank of China reduces 1 year Medium-term Lending Facility (MLF) rate to 2.3%
Asia Session
The USD/JPY sunk another percent on Thursday's Asia session as the reversal of funding trades continues. While it is hard to identify causation, the correction of USD/JPY coincide with the correction of Nasdaq which further spreads to other U.S. major equity indexes. There is little intel from the Japan side what BoJ may do but bond purchase cut seems to be concrete with little speculation of a rate hike. USD/JPY is trading 0.79% lower at 152.62 with session low at 152.23.
The PBoC has cut 1yr MLF to 2.3% from 2.5%. It came as a surprise because of the magnitude is greater than the earlier cut on Monday. Other Chinese banks also cut their deposit rate by 0.1-0.2%. It looks like to be another attempt form the Chinese government to support the local economy but the equity market is not cheering with broad sentiment negative. AUD/USD is dragged 0.57% lower at 0.6245, being double teamed by poor sentiment and falling Yuan. NZD/USD fared better but still fell 0.29% to 0.5913 while USD/CAD rose 0.09% on lower oil. Else, EUR/USD is unchanged and GBP/USD down 0.15%.
North American session
The USD ended the session little changed after seeing early losses, largely on USD/JPY, before seeing a late bounce as long end UST yields spiked. The UST curve saw steepeners inspired by a Bloomberg article from former New York Fed Chairman William Dudley calling for the Fed to cut rates in July.
USD/JPY fell to a low of 153.11 before recovering to 154, still down on the day. Outside USD/JPY morning trade was mostly stable apart from a modest bounce above 1.38 in USD/CAD on what was a largely as expected 25bps Bank of Canada easing, though with a fairly dovish tone. The post-BoC bounce in USD/CAD was however largely erased before the late USD bounce lifted USD/CAD to 1.3815. AUD/USD also saw a late dip to .6580 from .66. EUR/USD saw only modest late slippage, to near 1.0840 from a little above 1.0850. EUR/GBP and EUR/CHF sustained European losses.
Mixed US data had a limited impact. June’s advance goods trade deficit narrowed to $96.8bn from $99.4bn. July S and P PMIs saw manufacturing weaker at 49.5 from 51.6 but services strong at 56.0 frim 55.3. June new home sales, down 0.6% to 617k, were weaker than expected.