OANDA FX Market Commentary - Asia

AUSTRALIA

The Reserve Bank of Australia (RBA) minutes had no surprises this week, however, Stephen Innes, senior trader with OANDA Asia Pacific observed that, “The Central Bank hinted they might be content with the current state of affair and suggested that we may be in for a period of market stability on the foreign exchange; referencing their opinion that the recent weakness in the Australian dollar (AUD) has been supporting the export sector. Overall the RBA minutes were a non-event.”

The AUD has been trading with a heavy tone overnight on the back of the Chinese Stock market performance, which suffered another setback after the SHCOMP dropped 6%.

“To reinforce just how vulnerable the Australian dollar is to risk factors in China, going forward, I expect China, from both a growth and financial stability perspective, to present the greatest headwind for the Australian dollar going forward. Local traders will be on the lookout for any developing news from China, as investor confidence is waning there,” says Innes.

Outside of regional crosscurrents, Australian traders are eyeing economic data from the US Consumer Price Index (CPI) data and The Federal Open Market Committee (FOMC) minutes due this evening.

“Despite the fact this is the last major communication from the FOMC before it’s policy meeting in September, there’s not a great deal of market chatter, so I suspect lethargy from the summer months may be weighing on pre-event risk taking,” comments Innes. “However, with the market trading the Aussie from the short side, a weaker print on the US CPI or a dovish slant in the FOMC minutes could lead to a substantial Aussie rebound.”

New Zealand Dairy farmers had something to cheer about early this week as the Global Dairy Trade Index (GDT) increased 14.8% to halt 10 consecutive weeks of a losing streak.

“The New Zealand dollar however seemed oblivious to the news as Dairy Futures Prices had anticipated this move well in advance, especially after the Fonterra announcement last week that it would reduce the volumes of milk powder it makes available at its Global Dairy Trade (GDT) auctions over the next year., says Innes.

“The bounce in the GDT was right on analysts’ expectations. As the foreign exchange market quickly adjusts to these supply changes, traders will re-focus their attention to domestic data flow, where pessimism is overwhelming pertaining to New Zealand’s macro outlook. As such, I would expect any rebound in the Kiwi to be greeted with good supply from sellers in New Zealand.”


JAPAN

As the least interesting of the G10 pair, the USD to Japanese Yen (USDJPY) pair has been confined to extremely narrow ranges for over 48 hours.

“I suspect traders are waiting for some affirmation or evidence in the CPI or FOMC minutes due later tonight, which may hint of a September lift off. The general consensus is that the US CPI will rise by +0.2%MoM and core prices by +0.2%. While speculation still hovers 50:50 regarding a September lift off, I suspect that the tail risk will be for a lower print which may lead to some aggressive USD selling.”

THAILAND

Innes expects continued pressure on the Thai Baht (THB) in the wake of the Bangkok blast.

“Tensions are running high – the tourism industry is under pressure, along with investor confidence being rattled – so a move to 35.75 is within target. As expectations are quickly souring amid a confluence of negatives, traders are increasingly pointing to a 36.00 year-end trade,” comments Innes.

“Over the short term, we are seeing immense pressure on offshore funding rates which may play into short term FX trading decisions as the USDTHB trade long becomes increasingly over crowded. Overnight funding costs for short THB positions are running as high at 14%. As long as the spot continues to trend higher, traders will be okay with paying the heavy carry, however, once things settle or even if the Thai Government determines the bombing was a one-off event, we could see a sudden bout of profit taking as traders unwind the spot in favour of paying the heavy negative.

MALAYSIA

The Ringgit saw some profit taking overnight on the back of a short squeeze on Oil futures.

“Other than the small pull back in Oil prices, nothing has fundamentally changed and it is widely expected the USDMYR will remain firmly bid on any pullback,” said Innes.

CHINA

In China, the equity market came to the fore as the CSI 300 slumped 6.4% yesterday,” remarked Innes. “This, the despite stability in the Yuan fixing rates.”