ASIA MORNING: Risk Steadies

NZDUSD softened after the RBNZ decided to leave the official cash rate unchanged at 1.00%, but also, keep November guidance open to interpretation. The initial move saw NZDUSD rally 40pips to touch 0.635 before it breached the 0.63 mark in early Europe to be one of the weakest performers overnight, down -0.7%. In its release, RBNZ noted three times that "there remains scope for more fiscal and monetary stimulus if necessary" while also highlighted "keeping the cash rate at low levels is needed to ensure inflation increases to the mid-point of target range". Employment was said to be "around its maximum sustainable level" while external uncertainties continue to "subdue the global growth outlook". 

Overall, there were no significant changes to the RBNZ's monetary policy outlook with tone and language remaining fairly dovish and the likelihood of RBNZ targeting November for further easing still unclear. Having said that, however, at time of writing, markets are implying a 65% probability for a November 25bps rate cut. NZDUSD at could make another test of multi-year lows 0.6233-44. 
 

Overnight Trump and Japan Prime Minister Abe announced details of an initial deal that is set to "open up Japanese markets to US$7bn worth of US products" and cover industrial, agricultural and digital industries. The deal has not yet been rubber stamped as terms for the final agreement still need to be negotiated. The initial agreement will help lower the US trade deficit, a prickly issue that continues to get raised by Trump - more recently, at the UN forum where Trump gave a damning speech about Iran and China. 

USDJPY was helped by the news alongside other positive headlines where Trump said a deal with China "could come sooner rather than later". USDJPY retraced most of Tuesday's test of 107 and now sits at 107.7 above a key support area in 107.6. The US-China trade complex is now at 18 months without a trade deal. With risk sentiment feeding on any soundbite that hits the wires, I'm still bearish USDJPY in the short-term despite overnight's relief rally. 

 

Last night's momentum is likely to flow through to a higher ASX open with December Futures posting 0.2% overnight alongside gains in broader equity markets. The relief rally, driven by a combination of positive trade headlines (US-Japan, US-China) and faded impeachment risks, where 2/3 majority (unlikely) is needed in a Republican-controlled Senate to impeach the President, saw the USD Dollar Index lift above 99 as well as stronger equities and higher yields across the board. USDCNH also advanced further towards 7.20 despite Trump's "sooner than you think".