ANZ Morning Focus: FXWW

From the FXWW Chatroom: Reports that officials are reviewing China’s FX reserve holdings and have recommended slowing or halting purchases of US Treasuries added to bearish sentiment.
– Driving volatility in Fixed Income and Currency markets. US 10 year Treasury yields were just shy of 2.60% before pulling back modestly.
– Many calling for the end of the Bond Bull-market and the emergence of the Bear-market as fiscal and monetary tightening take hold.
– European yields failed to follow as it was mulled whether or not China would therefore buy more European debt. It is thought that buying Euro and Bunds would not help given they run a trade deficit with Europe, thanks to German exports.
– The USD has been broadly weaker while NZD has been one of the major benefactors, outperforming most G10 currencies which appears to be a hangover from the politically driven short positions
– NZD rallying toward 7230 o/n and whippy with stops above 72 cents, London however noted real money selling toward the highs which have halted the rally.
– Yen also remained firm as expectations about a future policy shift regarding JGB purchases continued. The BoJ is expected to detail its bond buying plans for 1-10 year maturities overnight.
– Canada has launched a wide-ranging attack against American trade practices in a broad international complaint over that country’s use of punitive duties — a move the U.S. is calling “broad and ill-advised.” Doesn’t bode well for NAFTA negotiations, The BoC has also cited NAFTA as a risk to their outlook.
– UK Nov Industrial Production rose 0.4% m/m, NIESR estimates Q4 GDP rose 0.6% q/q suggesting annualised growth is running 2%, above the BoE estimate of 1.5%
– Fed’s Kaplan said cyclical inflation pressures no doubt building, three hikes still a good base case, adding to the US treasury sell-off
– Equities have been reasonably stable to marginally weaker in the wake of Treasury volatility – DJI -015%, S&P -0.25%, EuroStoxx -0.36%
– Ahead Today: Locally there is ANZ Job Ads (10.00am) for December followed by Australian retail sales (1.30pm) for November.
– When is this NZD rally going to stop.. Kiwi has now cracked large resistance (above 72 cents), albeit temporarily, FIFX is encouraged by the selling interest above that level and the subsequent turnaround back below 72 cents. The NZD has remained a performer against the majority of G10 currencies but the move is beginning to look exhausted and the decimation of yield/carry should hinder further meaningful gains.
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