A view from the Asian FX space
Last Thursday saw leading European central banks, in co-operation with the US Fed, announcing USD liquidity operations through to year-end to relieve funding pressures among European banks as the EU sovereign debt situation, and its perceived strains on balance sheets, dent market confidence. Has it been effective and is it enough to encourage a return to normality in markets?
The short answer is: yes and no (!), the former linked to short-term reactions and the latter to the longer-term view.
USD/KRW is often seen as the bellwether of activity in USD/Ex-Japan and a broader reflection of market appetite for Asia risk. Offloading of South Korean assets has been accelerating in recent weeks, reaching a six-week peak last Thursday (prior to the USD funding announcement) and still evident on Friday.
Even this morning we saw USD/KRW re-testing near six-month highs as the desire to load up with US dollars still appears to be dominant despite last week’s liquidity measures (though some of today’s action could also be attributed to a broader risk-off trade in Asia). Interesting to note that Asian central banks were active in “smoothing” the move to test the upside of recent ranges last week (South Korea, Indonesia, Malaysia, Philippines and Taiwan were reported in the market and sitting on offers today, using some of those USD reserves accumulated during those H1 weak dollar phases).
So, in essence, while the announcement provided near-term respite and relief on Friday, the start of this week sees the dominant strategy still to be to liquidate short USD/Asia-Ex-Japan positions as traders “buy insurance” against further market blow-ups and face a market shifting to a more neutral stance on Asian debt rather than the bullish view that prevailed previously. Under those terms, expect further liquidation of Asian debt “good positions” as we head into the final quarter of the year.
Last Thursday saw leading European central banks, in co-operation with the US Fed, announcing USD liquidity operations through to year-end to relieve funding pressures among European banks as the EU sovereign debt situation, and its perceived strains on balance sheets, dent market confidence. Has it been effective and is it enough to encourage a return to normality in markets?
The short answer is: yes and no (!), the former linked to short-term reactions and the latter to the longer-term view.
USD/KRW is often seen as the bellwether of activity in USD/Ex-Japan and a broader reflection of market appetite for Asia risk. Offloading of South Korean assets has been accelerating in recent weeks, reaching a six-week peak last Thursday (prior to the USD funding announcement) and still evident on Friday.
Even this morning we saw USD/KRW re-testing near six-month highs as the desire to load up with US dollars still appears to be dominant despite last week’s liquidity measures (though some of today’s action could also be attributed to a broader risk-off trade in Asia). Interesting to note that Asian central banks were active in “smoothing” the move to test the upside of recent ranges last week (South Korea, Indonesia, Malaysia, Philippines and Taiwan were reported in the market and sitting on offers today, using some of those USD reserves accumulated during those H1 weak dollar phases).
So, in essence, while the announcement provided near-term respite and relief on Friday, the start of this week sees the dominant strategy still to be to liquidate short USD/Asia-Ex-Japan positions as traders “buy insurance” against further market blow-ups and face a market shifting to a more neutral stance on Asian debt rather than the bullish view that prevailed previously. Under those terms, expect further liquidation of Asian debt “good positions” as we head into the final quarter of the year.
No comments:
Post a Comment