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Dollar a touch on the softer side for now

  
Analysis, Forex

Dollar keeps mildly lower across the board to start the session

EUR/USD is trading near session highs at 1.2240 as buyers start to look back towards the May highs near 1.2266 in hopes for a stronger breakout:
EUR/USD
Adding to that is GBP/USD also keeping close to the 24 February high @ 1.4241 following the daily close above the 1.4200 level yesterday:
GBP/USD
Elsewhere, AUD/USD is back up to 0.7760 from 0.7740 following the RBA decision earlier while USD/CAD is also seen slipping to 1.2035 from 1.2050-60 levels earlier in the day.

 

The technicals are what is important here in my view and the ones in EUR/USD and GBP/USD are worth taking note in case it exacerbates the dollar’s vulnerability after the decline seen yesterday to start the week.

RBA leaves cash rate unchanged at 0.10% in June monetary policy decision

  
  Analysis

Latest monetary policy decision by the RBA – 1 June 2021

  • Prior 0.10%
  • 3-year bond yields target 0.10%
  • 3-year government bond yields is consistent with RBA target
  • Australian recovery is stronger than earlier expected and is forecast to continue
  • Central scenario is for GDP to grow by 4.75% over this year and 3.50% over 2022
  • An important ongoing source of uncertainty is the possibility of significant outbreaks of the virus, although this should diminish as more of the population is vaccinated
  • While a pick-up in inflation and wages growth is expected, it is likely to be only gradual and modest
  • RBA will consider in July whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond
  • RBA is not considering a change to the target of 10 basis points
  • AUD remains in the upper end of the range of recent years
  • RBA will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range
  • This is unlikely to be until 2024 at the earliest
  • Full statement
The aussie dropped on the decision from 0.7760 to 0.7740 against the dollar but honestly, I don’t see anything in there that is a material difference to the May policy meeting.
There was a slight downside risk bias added to the statement as the RBA acknowledged the recent virus situation in Victoria but they did also brush it off to saying that it should be easily dealt with as vaccinations start to pick up across the country.
Besides that, we’ll just have to wait until July for any changes by the RBA.

Forecasts for Chinese yuan raised for Q2, Q3 2021

  
  Analysis

HSBC cite the currency strengthening more than expected recently, forecasts:

  • Q2 6.25 (from prior forecast at 6.5)
  • Q3 6.45 (also from 6.5)
  • End 2021 fall back to 6.6 (unchanged from previous)
Net FX inflows to China have moderated slightly YTD, HSBC expects this narrowing trend to continue and to quicken in 2H and 2022
  • “China is unlikely to deliberately strengthen the RMB so as to curb rising import costs” 
  • “The recent surge in commodity prices is partly supply-side driven, rather than due to China’s demand”
On the Fed:
  • “The Fed may be patient about rate hikes, but it will have to taper its asset purchases eventually” 
—
Info via Bloomberg

PBOC sets USD/ CNY central rate at 6.3572 (vs. yesterday at 6.3682)

  
  Analysis

The People’s Bank of China set the onshore yuan (CNY) reference rate for the trading session ahead.

    • USD/CNY is permitted to trade plus or minus 2% from this daily reference rate.
    • CNH is the offshore yuan. USD/CNH has no restrictions on its trading range.

 

  • The previous close was 6.3710
  • Reuters estimate from their survey was 6.3556, Bloomberg 6.3556 …. (A rate that’s significantly stronger or weaker than expected is typically considered a signal from the PBOC).

PBOC setting the mid-rate slightly weaker than expected (for the CNY) today but nevertheless at the highest (for the CNY) since May 15 of 2018.

 

PBOC injects 10 billion yuan liquidity via 7-day reverse repo

  • 10bn mature today
  • thus a net neutral day

South Korea exports continue their rocketing surge (May data +49% y/y)

  
  Analysis

South Korea May 2021 data:

 

  • exports +45.6% vs yr earlier (Reuters poll +48.5%)
  • imports +37.9% vs yr earlier (Reuters poll +40.5%)
  • trade balance at provisional $+2.93 bln vs $+0.434 bln in April
  • exports to China +22.7% y/y
  • semiconductor exports +24.5% y/y
  • avg exports per working day +49.0% y/y

 

Exports growth sharpest in 32 yrs

Each time I post y/y data I have to mention the impact of comparison to 2020, the midst of the pandemic and response, i.e. there is a ‘base effect’.

Banks shouldn’t cite April 2018 circular for denying crypto services: RBI

  
Analysis, BITCOIN

The Reserve Bank of India (RBI) on Monday clarified that banks can no longer cite its circular on cryptocurrencies for not offering such products to customers, but said the lenders must adhere to local rules, which are quite exclusionary.

The central bank, in its circular dated April 6, 2018, had prohibited banks from dealing in cryptocurrencies or offering any service to customers on them.

The circular was challenged in the Supreme Court, which set aside the rules on 4 March, 2020.

However, the RBI said, banks continue to cite the 2018 circular by the RBI in order to justify why they are not offering any services on cryptocurrencies.

“In view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from,” the RBI said in a clarification on its website.

However, the central bank also cautioned banks that they must still continue to carry out customer due diligence processes “in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002 in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.” (more…)

A coronavirus ICYMI – China first lockdown since January – Guangdong / Guangzhou partial lockdown

  
Analysis, COVID-19

Guangzhou is a city in the southern Chinese province of Guangdong

  • a partial lockdown has been imposed on Guangzhou
  • travel restrictions apply in Guangdong
  • mass testing is under way
  • lockdown in place in the worst-hit district of Guangzhou
  • residents of some otGuangzhou districts have been told to get tested and large-scale screening is also under way in Foshan and Shenzhen
  • Guangzhou officials have focused its Covid-19 vaccination programme on priority groups
Guangzhou is a city in the southern Chinese province of Guangdong 
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