AUD: A$ Back Above 0.7000, Jobs Data Out Today
AUD spent most of the post Asia close recovering further ground, ultimately pushing above 0.7000. We got to a high of 0.7025 and currently sit around 0.7005.
- The A$ has been the best performer within the G10 FX space over the past 24 hours, up around 2%.
- The carryover from yesterday's AU yield surge helped. AUD/NZD is back close to 1.1150, while AUD/CAD is back above 0.9000. AUD/JPY is around 94.00, after opening yesterday closer to 93.00.
- Cross asset signals were also supportive in terms of higher US equities, a dip in the VIX (-3 to 29.6%), while US yields fell sharply.
- Commodities were also supportive, base metals edging higher, while iron ore moved higher to around $132, after an earlier sub $130 dip.
- Today we have employment data for May on tap. The market looks for jobs growth of +25k, (4k previously), which should take the unemployment rate to 3.8% from 3.9% last month. The participation rate is expected to edge up to 66.4% from 66.3%.
- Also out is consumer inflation expectations for June. In May we printed at 5.0%.
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STIR: Westpac: Has RBA Terminal Rate Pricing Peaked?
Westpac note that “with such a significant forward cash profile already factored-in for 2022 and beyond for both the Fed and RBA, it is perhaps only natural that markets will periodically re-assess the balance of trade-offs between ongoing inflation, front-loaded policy tightening and risks to the forward growth profile. The interplay of these trade-offs is contributing to volatility across the curve, including the continuing focus on what the Fed and RBA terminal rates might be. Indeed, for the first time in a number of weeks, the market has taken some RBA rate hike premium out of forward curves and lowered the terminal rate by around 25bp. That was in line with Fed pricing moves and given how hawkish the latter has been, which will likely be reiterated this week with Powell appearing with a raft of other speakers, the market will likely have a similar thematic this week. Domestically, however we have both the quarterly WPI and the key monthly labour report to provide more idiosyncratic price action. In our view, with the RBA having shifted toward business liaison and other measures of labour cost, the unemployment rate will probably have more of an influence on pricing. With the near-term RBA monthly calendar pricing in the 10-to-mid 30s, the risk is that a very strong result factors in more front loading rather than a softer result shifting pricing too far in the other direction. Looking further out along the curve, we have assessed the evolution in the 12-month forward cash pricing during the last tightening cycle. It tended to trade in a +50bp to -50bp range relative to where it was on the day of the first hike. We expect similar price action to evolve in coming weeks.”
NZD: Firmer Commodities, Weaker Greenback Throw Lifeline To Kiwi
NZD/USD reversed its initial losses after Asia hours Monday even as concerns about China's growth prospects resurfaced on the back of dismal April activity data. Firmer crude oil prices lent support to commodity-tied FX space, while a poor U.S. Empire M'fing reading dented the greenback.
- From a technical perspective, the pair found a floor around the 61.8% retracement of its 2020 - 2021 rally ($0.6232) over the recent days. It last trades flat at $0.6310, with bulls looking to further gains above May 11 high of $0.6380 & May 5 high of $0.6568 for confirmation that broader selling pressure is easing. Bears look for a dip through the aforementioned Fibo support, which would bring May 29, 2020 low of $0.6169 into play.
- Westpac revised their forecast peak for the OCR by 50bp to 3.50%, to be reached by the end of this year. They expect the RBNZ to deliver 50bp rate hikes at each of the May, July and August monetary policy meetings, with further 25bp hikes pencilled in for October and November. While four half-point rate rises in a row "would be virtually unprecedented in the era of inflation targeting, (...) so is much of what central banks are facing today."
- The OIS strip prices ~45bp worth of tightening for this month's MPC meeting, which is well within the recent range.
- On the data front, New Zealand's PPI will hit the wires Thursday, with trade balance & credit card spending set to follow the day after.
US TSYS: Twist Steepening Apparent On Monday
TYM2 a touch firmer at the re-open, last dealing +0-00+ at 119-22.
- To recap, the cash Tsy curve twist steepened on Monday, pivoting around 20s, with the major benchmarks running ~4bp richer to ~2bp cheaper come the close. 7s outperformed and 30s found themselves at the other end of the performance table.
- A solid corporate issuance slate likely aided the wider steepening trajectory, with the space moving off richest levels of the session as equities recovered from lows of the day (with the energy sector outperforming as crude oil moved higher). Still, the S&P 500 was 0.4% lower come the bell.
- A reminder that softer than expected Chinese economic activity data for April really set the tone in the first Asia-Pac session of the week (in the wake of PBoC inaction via its latest MLF operations), weighing on broader risk appetite, supporting Tsys. That was before the latest batch of ECB speak applied pressure to EGBs., which spilled over into Tsys. Tsys then found a bit of a base into NY hours, with much softer than expected NY Empire manufacturing data doing bulls no harm. Fedspeak saw Williams point to the need for 50bp hikes over the coming meetings, in addition to the need to get real rates back to 0 in the next year or so. Elsewhere, Cleveland Fed President Mester (’22 voter) maintained her usual line of hawkish thinking in a two-part interview with MNI.
- A couple of early NY block buys in FV futures (+5K apiece) supported the belly, with another block buy (+6,202) seen later in the day. Meanwhile, an apparent TU/TY steepener block (+10,400/-5,450) was seen late in the NY session.
- The Asia-Pac docket is relatively light on Tuesday. Minutes from the latest RBA meeting will be worth watching, although macro spill over should be limited at best. Looking ahead, Tuesday’s NY session will bring the release of retail sales data, in addition to a deluge of Fedspeak (Powell, Bullard, Mester, Harker, Kashkari & Evans are all due to speak).
