Following the strong close for the US (S&P +0.52%), Asian equities are trading broadly higher, with the Nikkei again leading the charge (+0.9%). The Shanghai Composite (+0.4%) is also benefitting from the better-than-expected trade data. Indeed China’s trade surplus came in at $18.16bn in April (market consensus of $16.15bn) as exports outpaced imports, although this needs to be taken with a pinch of salt given that the numbers don’t bear any resemblance to what their Asian partners have reported. NZD was in the limelight overnight, after comments from RBNZ Gov Wheeler that the exchange rate is “perhaps” significantly overvalued, there is scope to cut rates and ?the RBNZ has sold NZ Dollar and is capable of further intervention.? This saw NZD selloff from 0.8460 to a low of 0.8360, with macros selling on the move, although most of our flow concentrated in AUDNZD buying, seemingly confirming a reversal of the downtrend that has been in place since mid-March. With the market still short AUDNZD, my traders expect the cross to rally another 100 pts.
Worth noting that they have not given any indication of size or when this occurred and we already know that RBNZ was selling (a little) NZD late last year – it certainly makes sense from a long term stand point/valuation lvl- but their horizon much longer than the mkt. James Malcolm notes that this move is a big deal as it underlines a more active stance from NZ and possibly AUS. As such, it should increase people?s confidence in getting short these over-valued currencies.
EUR continues to frustrate the bears, with last week?s talk of negative deposit rates from the ECB and a stronger NFP number failing to see any follow through on the downside. EUR has again been supported overnight, trading back above the 1.3100 level, perhaps helped by reports in Die Welt that the ECB is looking at buying bad loans from Southern Europe to relieve the pressure on banks in crisis-stricken countries http://uk.reuters.com/article/2013/05/08/uk-ecb-loans-idUKBRE94700620130508. Overall, however we remain EUR bears, but have lightened our position given the disappointing price action and will look to sell a bounce to 1.3150.
USDJPY triggered a brief stop-loss run through 98.85 trading to a 98.635 low, with the market disappointed with the lack of Japanese activity yesterday post Golden week. The dip however has been supported by a good layered bids below and positioning data shows retail longs have been reduced which should mean dips remain shallow. Overall, we like staying long USDJPY but think we will consolidate before the next leg higher and it?s only a matter of time before we break 100.00.
Elsewhere, the NBP will announce its latest rate decision today. We stick with our call for rates on hold at 3.25% and see June as the more likely month for a rate cut. Around two-thirds of those on consensus are calling for rates on hold. Our view is based on not enough votes for a cut this month. There is strong resistance to reducing the level of the policy rate even further below the post-Lehman low and with no worsening of the downward risks to inflation we do not see enough votes for a cut this month.
Finally, a day of consolidation for USDAsia after yesterdays massive move on crosses ( AUDKRW, JPYKRW etc…). CNY fix came out at new record low at 6.1980 providing impetus for rest of asian currencies. Agents continue to guard the bid side in KRW, TWD and MYR but overall downtrend is firm. INR on the other hand continued to underperform with variety of names on bid side. Flows were very quiet overnight with some mild selling seen in USDINR and USDMYR. Positionwise we have reduced our risk broadly except MYR, where we continue to run short USDMYR, trimming our INR longs, THB and TWD shorts to core only.
Today, in Europe, we get German IP, Swiss CPI, Norwegian IP & the Norwegian rate decision (DB expects no change at 1.5%). In North America, we have Canadian housing starts & US weekly mortgage applications. In EM, we have the Polish rate decision (DB expects no change at 3.25%).
Deutsche Bank