Has continued to slowly attract right side action leading up to the Chinese Lunar New Year but has pulled back after failing to breach last night's 6.63 USD/CNH ceiling. "All in all, the market is trading with a very cautious bias and are not looking to move to aggressively leading up the holiday. By all accounts, funding remains flush and we are not expecting any local drama as we head into the end of the week," says Stephen Innes, senior trader at OANDA.
Spot USD/MYR opened at 4.2300/4.2400 on the back of another leg lower in oil markets and the additional negative fallout from the 1MDB scandal, which is again rearing it ugly head and showing little sign of fading into the background. "USD buying is coming from offshore accounts indicating negative foreign investor risk appetitie," said Innes.
The USD/THB opened 0.20% higher at 35.84/86 following weak global risk sentiment. The Monetary Policy Committee Meeting today and the Bank of Thailand is expected to hold policy at 1.50%.
With few surprises and little fanfare, the Reserve Bank of Australia (RBA) left rates on hold, opting to “kick the can down the road” for another few months but did acknowledge the Australian economy will face considerable headwinds associated with the drop in commodity prices. "While there were no surprises in the statement, almost on cue, West Texas Intermediate (WTI) immediately resumed its downward slide post RBA. I suspect the move was in part due to trend speculation as the market continues to exhibit obvious risk-off mode, said Innes.
After a bounce higher to .7129 on the back of RBA optimism, the AUD quickly capitulated to a wave of selling, likely taking their cue from falling oil prices while factoring in the susceptibility of risk assets in the wake of China’s official manufacturing PMI which printed weaker than expected at 49.4 on Monday.
In typical risk averse fashion, the USD lost ground overnight versus the JPY but traded positively versus most commodity and emerging market currencies.
In similar fashion, the AUD continued to move lower. WTI continued to sell off as oil markets' uneasiness continues to grip traders ahead of the weekly WTI oil inventory data.
in early trade, the AUD moved south of the critical .7050 region as traders focus on global risk factors amidst a sea of red on equity markets and the likelihood of further drops in energy prices. "I don’t think traders are really buying into the RBA optimism and expect that considerable regional and global economic headwinds will continue to weigh negatively on the Aussie, rate cut or not," said Innes.
The NZD is holding up well this morning, trading above the .6500 handle after the unemployment rate fell from 6.0% to 5.3% in Q4 to the lowest rate in six years. This occurred on the backdrop of another sour milk auction this morning, which saw Fonterra’s global dairy trade price index falling 7.4 %. Even more troubling is that whole milk powder fell 10.4% to just $1,952 m/. Despite little market reaction due the futures fully discounting the results, this should raise a huge red flag to the RBNZ as the ongoing dairy route will weigh negatively on the economy as a whole.
"I suspect this surprise employment print will likely outweigh the negative fallout from dairy and the RBNZ will be faced with a tough decision on the interest rate front," commented Innes.
In a speech this morning in Christchurch, RBNZ Governor Graeme Wheeler stated that the Central Bank was willing to overlook the drop in oil and that a rate cut would not be determined by over-emphasis on headline inflation. "We’ve seen the Kiwi continue to move higher as some speculative short position bets cover as the Governor sounded a bit more hawkish than expected," said Innes
Likewise, the AUD has bounced off this morning lows on Wheelers'comments. His inflation comments are shedding light on how Central Bankers are viewing the recent oil markets drop in their inflation outlook. "However, I expect any short-term rallies on the AUD to be faded as risk sentiment continues to look extremely fragile."