Another Ominous Yuan Fix?

Another ominous signal from this morning’s yuan fix has sent yuan bears into action. While the counter-cyclical mechanism pegged the fix lower than yesterday’s close, we’re still trading at year highs, suggesting China’s central bank is in no rush to stem the weakening tide. However, this does run contrary to statements from the bank overnight that they will not use the yuuan as a tool in a trade war. However, as history reminds us, the Pboc remains very fluid when it comes to currency policy.

Equity market reaction

The local equity markets, along with global equity index futures markets are not reacting well to traders pushing the yuan envelope, USDCNH higher. Market continue to underprice the destabilizing effect of a weaker yuan will have on global equity markets.

Gold Market

While keeping a close eye on equity sentiment, gold traders are gently buying gold in the event the latest markets developments could trigger a downward spiral on global equities. I don’t believe this is a significant enough trigger at this stage, but when compounded with the potholed encumbered landscape, it’s worth keeping an eye on.

Oil Markets

Batten down the hatches oil traders. Hurricane Micheal is intensifying, adding some support to prompt contracts

Japanese Yen

Price action can be very deceiving, a ten-pip range in USDJPY, but given the heightened level of discussions around the yen and BoJ this morning, something is going to give.

Japan’s economy is alive and kicking by any measure, but today’s over-the-top machine orders data that printed 6.8%MoM versus -3.9% expected and the YoY number rose by 12.6% versus 1.8% is a stunner by any stretch of the imagination, prompting the Cabinet Office to upgrade its assessment of machinery orders, saying they are in recovery.

The markets are still positioning for to a 115-year-end target of USDJPY, but the economic revival along with the weaker yen of late suggest the BoJ does have some wiggle room to tack to a more hawkish target.

Australian Dollar

Not to unexpectedly the Australian dollar ran into a wave of interbank offers and has traded off intersession highs.

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