Mixed open in Asia with RBA minutes, China’s LPR in focus: US dollar, ASX 200, USD/CHF

Market Recap

The US markets will be back online today to set a clearer backdrop for the risk environment, with US equity futures slightly in the red at the time of writing as a reflection of some lingering caution. Overnight, European indices largely revealed a lacklustre showing (DAX -0.96%, FTSE -0.71%, CAC -1.01%), while European bond yields saw a broad move higher. Ahead of the Bank of England (BoE) interest rate decision, positioning for a hawkish takeaway may prompt a move in UK 10-year government bond yields to its eight-month high, rising by 8 basis-point (bp) overnight.

The meet-up between US Secretary of State Antony Blinken and Chinese President Xi Jinping may mark a baby step in the right direction towards a warmer US-China relationship, although the absence of any concrete developments and still-firm tone from China suggests that greater clarity may be warranted, apart from just word exchanges. The pocket of optimism is that at least the meeting opens the gateway to more bilateral meetings or even hopes of a Biden-Xi summit later this year.

Apart from that, it has been a relatively quiet start to the week. The US dollar is attempting to stabilise after its post-Federal Reserve (Fed) sell-off, but it will now have to move back above the 103.12 support-turned-resistance level to provide some conviction for the bulls. Declining moving average convergence divergence (MACD) and Relative Strength Index (RSI) below 50 still reveal bearish momentum, with any downside to leave its 2023 bottom on watch at the 100.50 level.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -0.07%, ASX +0.23% and KOSPI -0.38% at the time of writing. The relentless rise in the ASX 200 over the past week has marked a break above a near-term descending channel pattern and its 100-day moving average (MA), leaving it less than 1% away from its April 2023 high. A reclaim above 50 for the RSI and a bullish crossover on MACD points to building upward momentum, although it will have to face a test of resistance ahead at the 7,380 level. Overcoming this level may be key in paving the way to retest its 2023 high at the 7,600 level.

Focus on the economic calendar today will be on the Reserve Bank of Australia (RBA) meeting minutes and China’s loan prime rate (LPR) decision.

With Australia’s cash rate futures leaning towards a terminal rate at 4.6%, which suggests an additional 50 bp worth of hikes over the coming months, further validation will be sought from policymakers’ views at the upcoming minutes. Lately, policymakers have been concerned about the slow progress in its inflation fight, as its monthly Consumer Price Index (CPI) saw a renewed rise in pricing pressures to 6.8% in April versus 6.3% the previous month. Any higher-for-longer stance or pushback against any upcoming rate pause from the central bank may be deemed as hawkish, which may continue to support the AUD.

Taking on a different direction in monetary policies will be the People's Bank of China (PBoC), with expectations for a 10 bp cut to both its one-year and five-year LPR today, tracking a similar move to its 7-day Reverse Repo rate and one-year MLF rate last week. Recent easing moves suggest that reopening efforts are losing their shine, setting the groundwork for more policy intervention to follow in the months ahead.

On the watchlist: USD/CHF on watch ahead of SNB’s meeting

The Swiss National Bank’s (SNB) policy meeting will be held this Thursday and recent hawkish comments on persistent inflation from its Chairman Thomas Jordan have left expectations well-anchored for further tightening to take place. He mentioned that “the fight against inflation is not over” and he “can’t exclude a further tightening of monetary policy”.

That said, it will be a close call on how much tightening is needed, with interest rate futures relatively split between a 25 bp (42% probability) and a 50 bp move (58% probability). The tone and guidance on its rate trajectory will be in focus as well, with any higher-for-longer stance likely to reinforce the policy divergence with the Fed, at a time where broad expectations are for the Fed to end its tightening process next month.

The USD/CHF has struggled to cross above a key resistance confluence zone (horizontal support-turned-resistance, 100-day MA, Ichimoku cloud) at the 0.910 level lately, as the formation of long bearish candles seem to reflect strong selling pressure. Its RSI is below the 50 mark while MACD is also crossing below zero, as signs of bearish momentum. Further downside may leave its May 2023 bottom at the 0.881 level on watch. On the other hand, greater conviction for the bulls may have to come from a move above the 0.910 level.

Monday: US markets closed for Juneteenth holiday, DAX -0.96%, FTSE -0.71%