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RBNZ

VIEW: TD Securities Tweak RBNZ Call

GOLD

Softer USD Lends Support

US TSYS

10s Out Of The Recent Range

CHINA RATES

Injection Helps Keep Repo Rates Subdued

JGBS

Futures Unwind Overnight Losses

AUD

Firming

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  • The slight 'dovish' tone from the Fed last week has eased the risk aversion and generated support for traditional risk on investment such as FX carry trade.
  • Powell mentioned that the job market still has 'some ground to cover' before the Fed could start to taper its bond purchases, implying that policymakers will be more focus on the job data rather than inflation prints in the near to medium term.
  • The chart shows that CEEMEA currencies have been trending higher against traditional 'risk-off' currency JPY in the past week, with TRY and ZAR at the top of the League, up 2.1% and 1.75% against the Yen.
  • In Turkey, the recent 'improvement in coordination' between Erdogan and the CBRT have been supporting the TRY, which could be viewed as a 'most-shorted stock' that tends to outperform its peers when risk-on environment accelerates.
  • Turkey real yields are under pressure since this morning's inflation release, with higher-than-expected CPI and PPI narrowing the gap with the benchmark rate of 19%. With cost pressures inching higher, CBRT's scope for policy easing later in the year is further curtailed.
  • On the other hand, the ZAR is the 'ultimate' EM carry currency (with MXN) with traders chasing the real yield; South Africa currently offers the second highest real high (+4.2% for the 10Y real) among the EM world.
  • Broad USD weakness could also lift up EM equities, which have been trending lower in recent weeks amid rising uncertainty over the Delta variant and the surge in political instability in some countries.

Source: Bloomberg/MNI