By eFXdata — Jan 13 - 03:00 PM
Synopsis:
ING highlights that the ongoing strength of the USD and firm US yields are creating financial pressures globally, with intervention risks looming for JPY and AUD as key battlegrounds emerge.
Key Points:
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USD Strength and Global Pressure:
- The USD’s extended strength and firm US yields are testing financial systems, particularly in China and Japan.
- UK asset markets are also showing strain, while China's USD/CNY onshore rate is pressing the upper +2% trading band around the daily PBoC fixing.
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China’s Policy Response:
- The PBoC is introducing measures to support the renminbi, including:
- A large sale of CNH bills planned for this week to drain liquidity.
- Relaxation of macro-capital measures allowing Chinese corporates and financial institutions to raise more funds overseas.
- December trade data revealed a massive $105bn surplus, potentially drawing commentary from President-elect Trump amidst looming tariffs.
- The PBoC is introducing measures to support the renminbi, including:
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JPY Resilience:
- The Japanese yen is holding steady, supported by:
- Threats of BoJ FX intervention in the 158/160 area.
- A 52% market-implied probability of a 25bp BoJ rate hike on 24 January.
- Defensive currencies like JPY and CHF are expected to outperform on crosses.
- The Japanese yen is holding steady, supported by:
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AUD and Commodity Currencies Under Pressure:
- Commodity and emerging market currencies are facing significant pressure from the USD and higher US rates.
- AUD/USD is nearing the 0.60 level, raising speculation over possible Reserve Bank of Australia intervention.
Conclusion:
USD strength is exposing vulnerabilities in global financial systems. While JPY and CHF may find support as defensive currencies, risks of intervention loom for both JPY and AUD as pressure mounts in key markets like China.
Source:
ING Research/Market Commentary