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Market Musing, Asia Pacific

26 Jun 2023

JPY: Asymmetric risks building

It has been one-way traffic for the JPY over recent weeks. The JPY has depreciated rather sharply against a range of other currencies, including the USD, AUD, and SGD since the Bank of Japan disappointed markets by maintaining its ultra-accommodative stance in late-April. Over the same period interest rate expectations for other major central banks like the RBA, Bank of England, and US Fed have risen (to differing degrees) due to ongoing inflation pressures, while market sentiment has also generally been positive. Given where USD/JPY, AUD/JPY, SGD/JPY, and the JPY more broadly are now trading, we think the distribution of...

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15 Jun 2023

AUD: break-out or bull-trap?

After a rather torrid May, the AUD has sprung back to life over the past few weeks. At ~$0.6820 the AUD is around the top of its ~4-month range. The AUD has also outperformed on the crosses. AUD/EUR is near its highest level since mid-March, AUD/GBP has moved above its 50-day moving average (~0.5341), diverging interest rate and macro trends have propelled AUD/NZD over ~1.10 for the first time since late-February, AUD/CNH has touched a ~2-year high, and AUD/JPY is north of ~96 (heights it hasn’t been at since last September). There has been raft of important economic events and...

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02 Jun 2023

The RBA has more work to do

Since kicking its tightening cycle off in May 2022, the RBA has raised the cash rate by a cumulative 375bps. This has been the most abrupt rate hiking cycle since at least the 1980s, but there looks to be more work to do. Recent information is likely to force the RBA’s hand, and we expect another 50bps worth of rate hikes over coming months. This would take the cash rate from 3.85% to 4.35%, a high since late-2011, however higher household indebtedness means this level of rates should pack a far bigger punch than it used to. The upcoming 6...

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24 May 2023

Cross-Check: AUD/NZD – RBNZ: end of the line

At its May 2023 meeting the RBNZ looks to have delivered its last interest rate hike for this cycle. The 25bp move, which was predicted by most market analysts, takes the Official Cash Rate up to 5.5%, a high since late-2008. And as the chart below shows, following the very abrupt tightening phase which started in NZ in October 2021, interest rates are now well into ‘restrictive’ territory (i.e. above the estimated equilibrium neutral rate). According to the RBNZ rates will need to “remain at a restrictive level for the foreseeable future” to ensure inflation (now 6.7%pa) returns to the...

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22 May 2023

Dancing on the US debt ceiling

US debt ceiling shenanigans, a repeated source of market volatility over the past decade or so, are rearing their head once again. After tentative progress was made last week negotiations look to have reached an impasse. Reportedly, the Republicans are continuing to push for sizeable reductions in government spending, particularly in areas such as healthcare, education, and housing, while also maintaining high spending on defense and the Trump-era corporate tax cuts. The two sides have agreed to resume talks with President Biden and House Speaker McCarthy set to meet on Monday, but things clearly remain fluid. The clock is ticking...

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