The USD extends its rally as 10y yield rises to a new intraday high of 2.92% during Asian trading. Fed minutes showed broad support for Chairman Bernanke’s plan to start reducing bond buying later this year. While the exact timing is still an open question, nothing in the minutes warrants changing our longstanding call for a modest cutback in the pace of monthly asset purchases on September 18, possibly by $20bn to $65bn per month.. A strong China’s flash PMI helped stall the move somewhat against G10. AUD has now stabilized just below 0.900, NZD at 0.784, and EUR at 1.334. USDJPY spiked to a day high of 98.34 before easing marginally to 98.12.
However, the USD continued to march higher against EM FX. USDINR hit another record high of 65.0 today, with markets clearly disappointed with recent piecemeal RBI measures. USDIDR also reached a new cycle high of 11144 despite yesterday’s announcement that an economic policy package will be introduced on Friday. The rest of the region is also markedly lower, led by THB and MYR.
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Credit Suisse