More active than it appears

News   •   Feb 28, 2017 13:12 +08

The US equity market was very low spirited overnight, but the Dow closed above the psychological 20,000 barrier for the fourth successive day. The Trump trade is the primary focus for equity markets and without any further guidance on US tax policies, investors stay on the side lines, annoyed and concerned about the unknown.

New Zealand Dollar

The Kiwi gapped lower on the RBNZ statement when the central bank stated that “Monetary policy would remain accommodative for a considerable period[1]"; indicating concerns for a slower return to their inflation target.

While the comments were not overly dovish, there was an active element in the market that were long NZD for it to outperform on the crosses, in particular on the AUDNZD, as inflation trajectories were diverging; hence monetary policies also appeared to be heading in polar opposite directions. Therefore, I suspect this morning's drop is more about position unwind than it is about anything else. Nevertheless, so much for getting the parity party outfit dusted off, back to the closet it goes.

Japanese Yen

US fixed income continues to lead the way and with a steady bid in the UST 10 years trading down to 2.35%, USDJPY dove below the critical 112 level and remains offered in early APAC trade.

With a possible event risk looming, the meeting between Japanese PM and President Trump this weekend, US bond yields will likely give the cleanest picture for the USDJPY trend into this week’s end. The event risk is clearly the downside, if this meeting does not go well as on trade negotiations.


With a sparse economic calendar, the focus remains on yield spreads in the EZ (Italy/France vs Germany) and the assortment of scandal sheet politics coming out of France. European Bond Markets have been extremely busy overnight rallying sharply in concert with UST’s.

Despite the USD trading with a softer bias overnight, EURUSD remained capped at 1.07, as political uncertainty remains the primary driver in the Euro space. Perhaps in a move to ease investor's nerves, Draghi reportedly said at a "not so " at a private ECB dinner meeting yesterday, inferring that the ECB will continue to be accommodative throughout his mandate, which ends in October 2019.


The PBOC held off from offering Reverse Repos in the market for the fourth consecutive day, draining liquidity in hopes of defending the CNH and halting capital outflow. However, interestingly enough, we are starting to see more two-way flow in the CNH than we have seen in some time. I would not go as far as calling it bullish CNH momentum, but rather with the US dollar energy all but sapped, we have gone from extreme pessimism to one of the mixed views, as investors are becoming less confident about a USD bull run.

Reserve Bank of India

Time to reload the INR carries trade after the RBI surprised the markets with another unexpected interest rate pause. This should bring to a close all the speculation about interest rates cuts for the medium term. The RBI shift to a neutral stance should all but cement that view.

Bank of Thailand

No surprises from the Bank of Thailand who kept rates unchanged as expected.

[1] http://www.rbnz.govt.nz/news/2017/02/official-cash-rate-unchanged-at-1-75-percent