RBNZ: 3.25% OCR Is In the “Neutral Zone”

At the Tokyo lunch break, JGB futures are stronger and Tokyo session highs, +16 compared to the settlement levels.

• (MNI) The BoJ board is expected to keep its 0.5% policy rate unchanged at the two-day meeting ending May 1, as policymakers monitor the economic and inflationary impact of recent U.S. trade policies and volatile markets.
• Uncertainty about the severity of the economic downturn caused by tariffs, along with the impact of the dollar/yen exchange rate, is making it difficult for bank officials to draft the likely scenarios they will present at the board meeting.
• Greater clarity on the economic outlook – particularly regarding the U.S. economy and Fed policy – is expected by July, when the BOJ releases its updated medium- to long-term growth and inflation forecasts. Should the U.S. fall into recession, it would likely remove any chance of a BOJ rate hike this year.
• Cash US tsys are flat to 1bp cheaper, with a flattening bias, in today’s Asia-Pac session after Friday’s solid gains.
• Cash JGBs are flat to 2bps richer out to the 20-year benchmark and 1-2bps cheaper beyond. The benchmark 10-year yield is 2.0bps lower at 1.322% versus the cycle high of 1.596%.
• Swap rates are 1-3bps lower. Swap spreads are mixed.

USD/CNH is holding close to session highs (7.2986), last near 7.2950/50. We are modestly higher, in line with a tick up in USD index levels. The broader USD index though, USD/CNH remains within recent ranges. Support remains evident in the low 7.2800 region, while recent highs remain intact close to 7.3350.

• The headlines crossing from the press conference aimed at stabilizing the economy and supporting the jobs market haven't shifted market sentiment greatly. It still appears more monetary stimulus is on the way, but the authorities will enact such moves in a timely manner.  Contingency plans will also be put in place.
• No doubt the authorizes are waiting to see how the trade/tariff conflict with the US unfolds.  The NRDC stated it was still confident of hitting this year's growth target.  
• On the yuan, the PBOC vowed to keep the currency basically stable.
• the bias for the currency is likely to remain for any fresh depreciation pressures to remain gradual/steady, with focus on where tariff levels end up. A higher average tariff rate for China compared to the rest of the world is still likely to bias CNH weaker on key crosses like EUR and CNH.
• In the equity space today, trends have been very steady as has been the case in the past few weeks. The CSI 300 remains close to 3800 in latest dealings. 

As the US dollar strengthens (BBDXY +0.1%), risk-averse currencies are marginally outperforming today given lower US equity futures and subdued China/HK indices. AUDUSD is down 0.2% to 0.6379, close to the intraday low, after a high of 0.6407 earlier in the session, but is not finding support from PBoC comments that it will cut rates and RRR. The pair continues to struggle to hold gains above 64c. There has been little news today with the focus on Wednesday’s Q1 CPI data.

• AUDJPY is down 0.2% to 91.69 but off the intraday low of 91.59. AUDEUR is 0.2% lower at 0.5620 down from 0.5640 earlier. AUDGBP is -0.1% to 0.4802. AUDNZD though is little changed at 1.0723 off the intraday trough of 1.0705.
• Equities are mixed with the ASX up 0.9% and Topix +1.0%, CSI 300 flat but Hang Seng down 0.1% and S&P e-mini -0.4%. Oil prices are lower with WTI -0.2% to $62.92/bbl. Copper is down 0.9% and iron ore around $98/t.
• Later US April Dallas Fed manufacturing and UK April Nationwide house prices are released. ECB’s de Guindos presents ECB’s 2024 Annual Report.