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Major Asian asset baskets gained, with Australia shares jumping as RBA cuts rates.
The RBA cut its benchmark rate by 25 basis points to a record low 1.75 percent, noting that inflation data are unexpectedly low and that it is less concerned by the risk low rates pose to the housing market.
The Bank of Japan (BoJ) maintained its QQE policy of raising the monetary base by JPY80tn on an annual basis and of continuing to apply its negative rate of -0.1% to the current account (policy-rate balance), while the market may continue to expect additional QQE.
There is a risk that the market may once again perceive limits to the effectiveness of monetary policy if additional QQE were to be implemented.
Before the BoJ implemented QQE with negative interest rates, the market thought that there was a limit to the effects of monetary policy.
Uphold longs in CNH-TWD 3m NDF:
CNY-TWD is down by 1.3% including positive carry.
The trade has not done well on TWD's gradual one-way appreciation.
It should move higher in reasonable scenarios of Yuan depreciation.
The trade offered attractive carry of around 34bp/month at initiation, but is not attractive at the moment given the collapse in forward points.
Uphold Shorts in SGD-INR 1m:
SGD-INR cross is trading close to the top-end of the 2-year range.
SGD NEER has started trading in the upper half of the band although MAS eased SGD NEER appreciation path to neutral last week and Singapore data remains poor.
The INR should outperform on improved sentiment after the rate cut and revised liquidity framework and better monsoon expectations.
The trade carry has positive carry of 42bp/month.
Uphold Shorts in MYR/IDR 3m NDF:
In the favourable short term outlook and absent a massive flare up in the risk aversion, the inter-EM positive carry trades should perform well.
Entry point has become attractive after the recent rally, which seems to be stalling.
In Malaysia, political risks are underpriced while sentiment towards Indonesia is solid and bond inflows remain robust.
