The Asian traders remained jittery this Wednesday, as a weaker Yuan setting by the Chinese central bank combined with an aggressive RBNZ rate cut sent the risk sentiment into a tailspin, against the backdrop of escalating US-China trade worries.
The Kiwi collapsed to the lowest since January 2016 near 0.6380 region on RBNZ’s stunning 50 bps rate cut and Governor Orr’s talks about negative rates. The Aussie dollar also came under heavy selling pressure and crashed to a decade low below the 0.67 handle, as the RBNZ easing bias bolstered RBA rate cuts bets. New Zealand’s government bond yields hit record lows while Treasury yields also crashed amid a currency war brewing up.
The T-yields sell-off and negative US equity futures collaborated the latest declines in the USD/JPY pair to 105.95 lows. The USD/CNY cross resumed the upbeat momentum and headed back towards the decade highs of 7.0605. Meanwhile, both EUR/USD and the Cable stuck to its recent trading range amid a broadly weaker US dollar and ahead of the key German Industrial Production data.
Among the commodities, gold entered a consolidative phase, having reached the highest levels since April 15, 2013, at $ 1490.15. Both crude benchmarks faded the overnight bullish API data-led bounce and stabilized ahead of the European open.
Main Topics in Asia
RBNZ Updates
RBNZ cuts rates by 50 bps to 1.00%, NZD slumps
RBNZ: Rate cut demonstrates commitment to meeting inflation target
Gold in NZD terms eyes record highs after RBNZ rate cut
RBNZ’s Orr: Today’s decision doesn’t rule out any future action, Kiwi weakest since Jan 2016
RBNZ’s Orr: Easily within the realms of possibility that we might have to do negative interest rates
New Zealand government bond yields hit record lows
Other Key Headlines
North Korean Leader Kim: Military actions send a warning to US, South Korea over military drills – KCNA
WTI stabilizing in the $53 handle but remains on thin ice as global outlook deteriorates
We’re prepared for new US tariffs – Global Times Editor
Gold technical analysis: Eyes on 127.2% Fibo target
USD/CNH technical analysis: Eyes 5-day MA support at 7.02
PBOC sets Yuan reference rate at 6.9996
Sources: China state banks said to be mopping up dollars via swaps in CNY forward markets – Reuters
S&P: Trade policy risks mean more yuan depreciation pressure
Key Focus Ahead
We have a data-light European calendar for the second straight session, with the German Industrial Production data, due at 0600 GMT, to headline, especially after fresh signs of growth in the German manufacturing sector, as seen on Tuesday. From the UK docket, the Halifax House Prices data will drop in 0730 GMT, which is likely to have virtually no impact on the GBP markets, as Brexit/ UK political developments and will continue to remain the main market driver.
Also, in focus remains the Reserve Bank of India (RBI) monetary policy decision (at 0900 GMT) and its impact on the Indian Rupee, as the country battles with an economic slowdown, despite three straight rate cuts delivered by the RBI.
In the NA session, the Canadian Ivey PMI and Energy Information Agency (EIA) Crude Stocks data will hog the limelight amid a lack of fresh first-tier macro releases from the US. The speech by the Reserve Bank of Australia (RBA) official Bullock will be closely eyed after the bigger-than-expected RBNZ rate cut.
EUR/USD: Stuck at 50% Fib, focus on German industrial production
EUR/USD’s bounce from recent lows seems to have stalled near key Fib level of 1.1219. Signs of indecision have emerged on EUR/USD’s daily chart. An above-forecast German data is needed to push the pair above Tuesday’s high.
GBP/USD: Choppy inside immediate symmetrical triangle amid mild dossier of UK politics
Increasing calls for the Brexit deal change and fresh doubts over the PM Johnson’s future fail to propel the GBP/USD pair as it remains modestly unchanged near mid-1.21s heading into Wednesday’s London open.
Currency wars may end, but trade tensions remain
The ongoing trade spat between the US and China has turned into a currency war. Will it continue? China may be playing a dangerous game and weakening the currency may be a step too far.
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