RBNZ Joins The Queue, While Yuan's Advance Continues

Overview:

The decline in US rates and the doves at the ECB pushing back against the need to reduce bond purchases next month have seen European bond yields unwind most of this month's gain.  The inability of US shares to hold on to early gains yesterday did not deter the Asia Pacific and European equities from trading higher.  Only Australian and South Korean markets did not participate in the MSCI Asia Pacific Index's fifth consecutive advance today.  Europe's Dow Jones Stoxx 600 is also ending higher for the fifth session.  US future indices are around 0.25%.  The US 10-year is holding around 1.56% while European yields are 2-4 bp lower, and in Dutch 10-year yields have returned to negative territory.  The Reserve Bank of New Zealand was more explicitly hawkish than expected, and its 10-year bond yield jumped eight basis points and sent the currency 1%+ higher.  While it appears to help drag up the Australian dollar, the greenback is mostly steady to a little firmer against the major currencies.  Emerging market currencies are mixed.  The freely accessible ones, including South Africa, Turkey, and Mexico, are firmer, but Eastern Europe's currencies, Czech, Poland, and Hungary, leading the downside. The combination is leaving the JP Morgan Emerging Market Currency Index little changed.  With little protest, the Chinese yuan is trading at new three-year highs.  While industrial commodities, like iron ore and steel rebar, are trading lower, gold has pushed above $1900 for the first time since January.  It has only recorded losses in three sessions this month.  July WTI is in a narrow range, hovering around $66 and trying to extend its advance for the fourth consecutive session (BNO, GLD, OIL).  

Asia Pacific

The Reserve Bank of New Zealand joined the cue of central banks signaling intentions to adjust monetary policy as the crisis eases.  While leaving policy on hold, including its bond purchases, its projections for the cash rate suggest a hike in H2 22.   It published its first official forecasts of the cash rate since the pandemic broke. But, of course, it couched its outlook by noting that it is data-dependent.  The market quickly moved to price in two hikes next year.  New Zealand also reported a solid trade surplus (~NZD388 mln, the largest since last July), and Fonterra, the world's largest exporter of dairy products, forecast strong milk prices.  The Australian dollar was dragged higher by the surge in the New Zealand dollar, as some suspect the RBNZ move boosts the chances that the RBA signals an adjustment in July, with the possibility that some groundwork is laid at next week's meeting (FXA).

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Read more by Marc on his site Marc to Market.

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