AUD: A$ Attempting Break Above 0.7000, Recovers Some Ground On Crosses
AUD/USD has probed above 0.7000 but hasn't been able to make a meaningful break above this level yet. We have recovered some ground on crosses though, most notably against JPY. AUD/JPY is up around +0.30% for the session so far, but has seen some selling interest above 94.20 (the pair was 94.14 last). Equities are providing a positive risk-on signal for the AUD, although gains are more concentrated in the tech space. AU yields are sharply lower, the 2yr off by around 17bps. Whilst this is in line with the offshore tone from the overnight session, this is driving the AU-US 2yr spread lower, which is back to -46bps, not too far from yesterday's lows of -50bps.
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US TSYS: Tight Start To Asia Trade
TYU2 sticks to a very narrow 0-03 range in early Asia trade, with a lack of meaningful macro headline flow leaving participants sidelined. The contract last deals +0-07+ at 116-30 as a result, with cash Tsys running little changed to 1bp cheaper across the curve, bear steepening at the margin. Chinese equity market gyrations will likely set the tone in Asia, as participants weigh up Tuesday’s pull lower in U.S. equities after the well-documented, positive news surrounding China’s COVID-19 quarantine policy supported Chinese equities into Tuesday’s local close.
CNH: CNH Bounce Proves Short-Lived
USD/CNH's dip sub 6.6700 late in yesterday's Asia session proved to be very short lived. We got close to 6.7150 overnight, before settling back down to 6.7050. We currently track around 6.7025.
- To recap, China has announced a halving of quarantine time for inbound travellers and close contacts of Covid patients domestically.
- The domestic shift could help see consumption/services rebound, although China officials noted the announcement wasn't a shift in its Covid policy.
- Of course, a stronger domestic recovery would trim China's external trade surplus position via higher imports. Commodities like iron ore bounced on this news, while oil prices continued to recover.
- Additionally, any increase in outbound travel from China could also bring back the services trade deficit. Outbound travel remains very low compared to 2019 levels.
- Such developments would be less supportive for CNH, all else equal and is a likely factor in CNH's short-lived bounce late yesterday post the Covid quarantine announcement.
- Elsewhere, geopolitical tensions have firmed. NATO is expected to label China a 'systemic challenge' when it releases it strategic outlook later this week. Meetings this week have been attended by leaders from South Korea and Japan.
- The China Golden Dragon Index fell overnight, in line with broader tech weakness. The index fell by 1.45%. Domestic related stocks should still be supported today.
- Note USD/CNH's 50 day MA comes in at 6.6911, while there is no domestic data today, with tomorrow's PMIs in focus.
MNI EXCLUSIVE: A Look At Australia's Rate Hike Path
Australia's path on rate hikes - on MNI Policy MainWire now, for more details please contact sales@marketnews.com
