GERMAN AUCTION RESULTS: 2.60% May-41 Bund / 2.50% Jul-44 Bund

• *ING note that AUD & NZD have been the big losers in the G10 in the second half of March as pressure from Chinese yuan proxy trades intensified. They don’t see much respite in sight given their relatively pessimistic view on the US trade policy to be rolled out in April. ING are still targeting a move to 0.62 in AUDUSD before they can think about calling for the bottom.
• *TD Securities maintain their bias to position for steeper curves and a weaker AUD with "Liberation Day" likely to overshadow the RBA meeting.
• *JP Morgan engages in EURAUD downside this week to tactically trade relative tariff exposure. Encouragingly, AUD screens more favourably on their FX quant TEAMS model with the currency buoyed by its forecast revision and activity surprise index scores keeping its ranking relatively firm.
• *Goldman Sachs believe markets continue to look more vulnerable to a downside surprise to the US outlook than an upside one. GS say the weaker momentum in the soft indicators and broadly lower sentiment raises the odds that the hard data begins to follow suit. The miss in personal spending adds to that case and increases the likelihood that markets view tariffs as most negative for the US. For that reason, GS continue to have a bias towards lower longer-end yields and equities—and they stick with their open trade recommendation to short AUD/JPY with a target of 90.5.

• Analysts have been pointing out that the shifting market response to tariffs over the past two weeks has made it more difficult to position tactically, especially in currency markets. The Australian dollar has been one of the key underperformers over this period, remaining one of the best barometers for pessimism surrounding China and global risk sentiment.
• The renewed weakness in equity markets is weighing on AUD to start the week, and the close proximity to both the RBA decision and ‘liberation day’ should keep all eyes on AUD. Pricing for an AUDUSD straddle expiring on Friday (which includes NFP) incorporates a move of +/- 65 pips from current spot levels of 0.6260.
• Should AUD weakness prevail, this could place pressure on a key short-term support to watch at 0.6187, the Mar 4 low. Importantly, clearance of this level would reinstate a bearish technical theme for the pair.
• As has been well noted, lower US equities and lower US yields continue to bolster the bearish threat for AUDJPY, and the cross has recently respected downtrend resistance, drawn from the July 2024 high (shown below). Moving average studies remain in a bear mode position, and today’s sharp 1% move south renews the focus on the March double bottom at 91.86. Below here, the August global carry unwind lows ~90.15 remain a key medium-term target for the move.

Risk-off price action has been driven by tariff worry ahead of “Liberation Day” (Wednesday) and source reports pointing to the potential for deeper U.S. tariffs.

• A move away from lows in European equities & crude oil pushed bonds off session highs.
• Bund futures traded through key resistance at 129.41, peaking at 129.59, before fading back to 129.30 last. A fresh extension higher would target 130.00.
• Yields ~4bp lower across the German curve.
• Regional level German CPI data points to an inline national reading later today, while Italian CPI topped expectations.
• Eurozone HICP is tracking a little below consensus (+2.1-2.2% Y/Y vs. BBG median of +2.2%).
• EGB spreads to Bunds little changed to 2bp wider given the risk-off theme.
• There was no real initial reaction in OATs (both outright and in spread vs. Bunds) as RN leader Le Pen was found guilty in the RN embezzlement case. French political uncertainty and fiscal risks are set to remain evident in the near term, irrespective of who leads the RN through the next election cycle.
• Gilt futures have breached last week’s high and traded above 92.00.
• Initial Fibonacci resistance (92.17) protects trendline resistance drawn off the March 4 high (91.55).
• Yields 3-4bp lower across the UK curve.
• Dovish repricing in both the EUR (~85% odds of a cut showing for next month, 64bp cuts priced through Dec) & GBP (54bp of cuts showing through Dec) short ends given the prevailing risk-off theme.
• Comments from ECB’s Lagarde & Panetta failed to move markets.