Ahead Today
G3: US Durable Goods, US PCE inflation, US Personal income and spending
Asia: Bank of Thailand
Market Highlights
Brent oil prices fell below US$89/bbl as Iran and Oman discussed an “interim framework” aimed at resuming shipping through the Strait of Hormuz, while US long bond yields dropped with the 30-year down to 5.16% and the 10-year at 4.63%. In particular, Iran Foreign Minister Abbas Araghchi and his Omani counterpart Badr Albusaidi discussed the initiative to establish a “temporary joint maritime corridor”, with talks continuing on a possible permanent arrangement according to the Oman News Agency. Meanwhile, Pakistan’s Army Chief concluded a one-day visit to Iran, with Iranian media saying the trip yielded valuable results.
Overall, longer-end US yields fell and swap spreads narrowed as markets further digested the potential measures that the US Treasury could take to dampen volatility in long-end yields, including the possible usage of the Treasury General Account, cutting issuance sizes, and raising the share of T-bills in funding the government.
The combination of these moves resulted in a move lower in the Dollar Index, and in Asia the likes of SGD, KRW and CNH received some support with USD/CNH in particular grinding lower below the 6.72 level. Oil sensitive currencies such as INR and PHP also received some support, but we note that for INR part of the move earlier during the day was likely driven by FX intervention with RBI selling Dollars to push spot USD/INR below the 95.50 mark according to news reports.
We will have the Bank of Thailand policy meeting later today. We expect BOT to keep rates on hold at 1% while continuing to communicate a message of holding rates accommodative for some time to come. While BOT is likely to raise its 2026 GDP forecast from the current 1.9% projection made in May, it is also likely to highlight the uneven recovery coupled with pressures SMEs and households face from higher costs and lower income growth. Moving forward, with fiscal support likely to be somewhat less supportive we could see some further retracement in longer-end THB bond yields from here.