FOREX: A$ & NZD Outperform Yen Ahead Of US Tariff Announcement
Apr-02 04:48
AUD and NZD gains, against both the USD and JPY, have been the main focus points in the first part of Wednesday trade G10 FX trade. The USD BBDXY index was last just under 1273, a touch below end Tuesday levels in NY. Focus remains firmly on the US reciprocal tariff announcement, later on Wednesday US time (4pm EST).
- We had a number of news wire stories related to tariffs towards the tail end of the US Tuesday session/early Asia Pac trade. To recap:
A CNBC reporter posted on X, citing Republican Rep. Kevin Hern, that the tariff rates announced Wednesday will be the highest they will go and countries can then take steps to bring the tariffs down. This reportedly followed a meeting with US Tsy Secretary Bessent. - The WSJ also noted earlier the USTR is preparing another tariff option for Trump: ""The U.S. Trade Representative's office is preparing a third option of across-the-board tariff on a subset of nations that likely would not be as high as the 20% universal tariff option, according to people with knowledge of the plans."
- There was also a Washington Post article around the use of tariff revenue to support the economy, including options for a tax dividend or refund, but these plans are reportedly only in the very early stages.
- US equity futures re-opened higher, but positive momentum waned and we were last -0.10% for Eminis. US Tsy yields are higher across the benchmarks, up 2bps for the 10yr to 4.19%. This has likely helped nudge USD/JPY a little higher, but at 149.80/85 we are only marginally above end Tuesday levels. EUR/USD is holding under 1.0800.
- AUD and NZD have ticked up. AUD/USD last near 0.6300, while NZD/USD is back to 0.5720, slightly outperforming the AUD. Both currencies are firmer against the yen and challenging 20-day EMA resistance points. AUD/JPY was last near 94.35/40, while NZD/JPY was at 85.70/75.
- Looking ahead, apart from the US tariff announcement, the Fed’s Kugler speaks on inflation expectations and March US ADP employment and February orders are released. The ECB’s Lagarde, Schnabel and Lane talk.
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CHINA: Bond Futures Higher Ahead of NPC.
Mar-03 04:36
- Bond futures are stronger today as China’s National People's Congress is about to kick off.
- China’s 10YR future is up +0.09 at 108.295, following Friday’s close of 108.205.
- The 10YR is at the mid-point of the 50-day EMA and the 100-day EMA as the 20-day EMA loses momentum.
- China’s 2YR future is up +0.06 today at 102.652, following Friday’s close of 102.59.
- The 2YR future has breached the 200-day EMA of 102.63 and is trending upwards with the 20-day EMA trending lower at 102.68.
- There is considerable expectation built up from this year’s NPC with both monetary and fiscal policy announcements expected.
- China’s authorities generally keep markets stable around the NPC.
STIR: RBA Dated OIS Pricing Slightly Firmer Today
Mar-03 04:34
RBA-dated OIS pricing is flat to 3bps firmer across meetings today.
- Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through July are 2-5bps firmer, while those beyond are 2-9bps softer.
- Last week, January headline CPI inflation printed slightly lower than expected at 2.5% y/y, in line with December. However, the underlying trimmed mean rose 0.1pp to 2.8%, but still below the top of the RBA’s 2-3% band. The first month of the quarter has limited updates for services inflation. The seasonally adjusted data is consistent with the RBA remaining cautious with it stating that “upside risks remain”.
- A 25bp rate cut in April is given a 9% probability, with a cumulative 57bps of easing priced by year-end (based on an effective cash rate of 4.09%).
Figure 1: RBA-Dated OIS – Today Vs. Pre-RBA Levels
Source: MNI – Market News / Bloomberg
AUSSIE BONDS: Cheaper With US Tsys, More Q4 GDP Partials Tomorrow
Mar-03 04:28
ACGBs (YM -3.0 & XM -4.0) are weaker after today’s stronger-than-expected domestic data drop, namely Q4 Inventories and Company Profits.
- However, the key driver of today’s movements has been US tsys. Cash US tsys are 2-3bps cheaper in today’s Asia-Pac session after an emergency security summit in London on Sunday raised bets that haven demand could lose its appeal should prospects improve for an end to fighting in Ukraine.
- Nevertheless, this weakness has started to reverse as some anticipate that slower US growth expectations could see traders increasingly price in a potential Federal Reserve rate cut as soon as June.
- “Moreover, the risk of a government shutdown from March 15 appears greater than ever.” (per BBG)
- Cash ACGBs are 3bps cheaper with the AU-US 10-year yield differential at +10bps.
- Swap rates are 3bps higher.
- The bills strip has bear-steepened, with pricing flat to -3.
- Tomorrow, the local calendar will see Q4 Current Account Balance and Net Exports of GDP, and January Retail Sales data alongside the RBA Minutes of the February Policy Meeting.
- This week, the AOFM plans to sell A$800mn of the 4.25% 21 March 2036 bond on Wednesday and A$700mn of the 1.00% 21 December 2030 bond on Friday.
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