The impact of higher oil prices is leaving a profound effect on high-yielding and commodity-producing currencies. Persistent declines in implied US equity and rates volatility against the backdrop of higher oil prices are a powerful and sturdy combination.
The RBA held the policy rate as expected, with the still-deteriorating labor markets likely deterring any possibility of a hawkish surprise, even as the Australian economy recovers faster than anyone could have thought. Instead, they opted not to alter the policy stance, which is far less dovish than global peers anyway.
By holding the cash rate and the 3y ACGB yield at 0.25%, the RBA is suggesting they’ll continue to push back against the idea of negative rates. At the same time, the central bank might also be sending a powerful message about the prowess of their yield curve control mechanism. Indeed, the RBA has managed to avoid amassing a sizable chunk of the ACGB market, which could be their primary benchmark for policy success.
KRW is the best-performing currency in Asia since US President Trump's press conference on China last Friday, with the most significant inflow to equities ($133.1 mn) since May 19 on Monday. But that move is unpleasantly pushing against a backdrop of weak export growth.
But Korea's Q1 GDP data was revised slightly higher this morning. USDKRW opened at 1224 and traded down to 1221.9, before retracing higher to 1226, tracking the USDCNH move as traders continue with defensive strategies on USDCNH dips.
As for US stock markets, if they can survive the most significant economic shock of a lifetime the S&P 500 could probably side-step waves of looters; after all, nothing speaks justice like rummaging through a Target Store (SMH).
Unless, of course, this civil unrest manifests into a summer of discontent where consumers remain jaded by a post-Covid-19 hangover compounded by a White House running out of options on all front, be it domestic or foreign policy. One can only imagine what it could be like under those circumstances when the pogey runs out.
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In January the Fed needed to put the Taper Genie back in the bottle; now they need to convince the short end crew to back off repricing the Fed Funds strip