Risk-Off Pattern Holds Despite Incremental Relief From Report On China Border Rules Debate

The underlying risk tone was negative, with U.S. e-minis losing altitude as the session progressed, after Wednesday's poor showing from benchmark indices on Wall Street. However, risk assets got some reprieve from a BBG report flagging debates among Chinese officials on whether to reduce the mandatory quarantine period for inbound travellers, stressing that any such decision would have to be cleared by senior leaders.

• The greenback benefitted from safe haven demand, with the BBDXY testing 1,350 as a result. The index wiped out gains in a knee-jerk reaction to the China story, but then gradually unwound the reaction move.
• Expected Gotobi Day flows and 10-Year JGB yield sitting above the 0.25% cap raised the risk of further gains for USD/JPY but the pair respected a very tight range, as risk aversion favoured the yen. Participants monitored the pair for signs of an intervention by Japanese officials on approach to the psychologically significant Y150 figure, which has held for now.
• Japanese officials stood their ground. The BoJ announced an unscheduled round of bon-buying in defence of its YCC framework, reaffirming its dovish bias. Elsewhere, FinMin Suzuki pledged readiness to act appropriately on excessive FX moves.
• The Antipodeans fell prey to the wider cautious mood, with losses facilitated by a weaker than expected Australian jobs report. Employment growth was meagre, but doesn't move the needle much for the RBA, as forward-looking indicators already pointed to a slower but still very tight labour market.
• The kiwi paced losses, confirming its sensitivity to swings in market sentiment. Selling pressure was amplified by the partial withdrawal of hawkish RBNZ bets. Meeting-dated OIS price ~78bp worth of tightening next month versus yesterday's peak of 91bp. NZD/USD has now fully erased gains registered after the strong Q3 CPI print earlier this week.
• USD/CNH showed above the upper end of the PBOC's permitted USD/CNY trading band (+/-2% from fixing mid-point) but failed to hold above there and retreated, extending losses to new session lows as the aforesaid BBG report crossed the wires.
• Data highlights going forward include U.S. jobless claims, existing home sales & Philly Fed Biz. Survey. The PBOC will set its benchmark Loan Prime Rates, while Fed's Harker, Jefferson, Cook & Bowman, ECB's de Cos & Norges Bank's Bache will speak.