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Asia FX Sinks Further, USD/JPY Narrows Gap With Y142

FOREX
  • JPY is sliding in early European hours, putting USD/JPY on track to test Y142.00 as the pair resumed recent strength as US investors return from the three-day holiday weekend. The primary driver for USD/JPY remains rate differentials, with front-end US yields shooting higher after being closed throughout Monday trade.
  • Asia FX is suffering more broadly, with CNH touching new cycle lows against the USD despite yesterday's policy tweak from the PBoC, which saw the Foreign Exchange RRR trimmed by 2ppts. USD/CNH's new high now lies at 6.9785, the highest rate since mid-2020. Elsewhere in the region, TWD, KRW and MYR are seeing similar price action, touching new cycle lows against the greenback.
  • AUD/USD initially dipped towards 0.6790 following the RBA rate hike, and the pair remains underwater headed into US hours. The RBA statement didn't shift dramatically away from previous outcomes, with markets cognizant of the risk the central bank may seek to shift the outlook in a more dovish direction, at least relative to current market pricing.
  • Focus turns to the final August services and composite PMI data from the US as well as the ISM Services Index release.

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