AUD: A$ Stronger Following US CPI Data, Watch For Local Jobs Figures

EXECUTIVE SUMMARY

• Outgoing Governor Kuroda met the wider consensus view as he chose not to tweak policy settings at his final monetary policy meeting atop the central bank. The post-meeting statement was mostly a copy and paste exercise, reaffirming the Bank’s overarching view surrounding the economy (albeit with a slight downgrade to its view on exports), alongside a reiteration of its forward guidance. This left the future of monetary policy settings to the incoming leadership, as opposed to making any attempt to deploy the ‘transition-smoothing’ tweaks that some had called for.
• Ultimately, we don’t expect any change at the Bank’s April meeting, which will see Kazuo Ueda preside over matters for the first time. Still, that event may be used to signal a wider review of the BoJ’s monetary policy framework, as well as a formal rethink of the inflation accord struck between the Bank and the government (with the potential for a tweak to the wording of the timeframe surrounding the Bank’s inflation target, as opposed to the numerical 2% inflation goal itself).
• These steps would be deemed hawkish and would likely pave the way for a further tweak of the BoJ’s monetary policy settings in the months that follow.
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TYM3 deals at 114-13+, -0-07+, in line with late NY levels.

• Cash tsys finished flat to 61bps richer across the major benchmarks. The curve bull flattened.
• 2-Year Yields fell ~61bps, the largest one day decline since October 1982, surpassing the 50bps fall of 15 Sep 2008.
• Short end yields continued to firm in the wake of the collapse of SVB and NYs Signature Bank. All deposits at SVB will be guaranteed and the Feds Bank Term Funding Scheme will value collateral at par.
• On the sell side, Nomura became the first bank to call for a rate cut. They look for 25bps cut from FOMC in reaction to the looming financial stability risks.
• Barclays, Natwest and Wells Fargo all joined Goldmans in calling for a pause. Deutsche Bank revised their terminal rate forecast down 50bps to 5-5.25%, that still sees another 50bps of hikes from current levels.
• In Fed dated OIS has ~20bps of hikes priced into what is left of the hiking cycle, with ~14 hikes priced for March. The terminal rate is now seen at ~4.8% in May. There are ~100 bps of cuts priced in before the end of 2023.
• There is a thin data calendar in Asia-Pac today. Further out the highlight is February's CPI print, our preview is here.

ACGBs, in futures roll-impacted trade, are dramatically higher (YM +25.0 & XM +16.2) as U.S. Tsys surge following developments in the Silicon Valley Bank (SVB) situation. U.S Tsy 2-year yields decline 60bp as U.S.STIR shunts lower with Goldman Sachs and Barclays both revising their calls to steady for the March FOMC from +50bp previously. Cash ACGBs open 18-26bp stronger with the 3/10 curve 8bp steeper and the AU-US 10-year yield differential -5bp at –23bp.

• Swaps open with the 3s10s curve 6bp steeper, rates 16-23bp lower and EFPs 3-5bp wider.
• Bills are 10-42bp richer out to the mid-reds with the whites leading.
• RBA dated OIS pricing open 10-41bp softer for meetings beyond May with the later meetings leading. Pricing for the April meeting has declined to an 12% chance of a 25bp hike. Terminal rate expectations slump to 3.70%.
• The local docket delivers the February NAB Business Survey today. January showed a rebound in business conditions after a soft end to 2022.
• Tracking U.S. Tsys and monitoring SVB developments remains the play of the day, at least until the release of US CPI tonight.
• AOFM is scheduled to sell A$100mn 1.25% 21 August 2040 Indexed Linked ACGB today.