FOREX: Asia Wrap - BBDXY Extends Move Below 1200, Can It Follow Through ?

ACGBs (YM +4.0 & XM +6.0) are stronger with US tsys 2-4bps richer in today's Asia-Pac session after yesterday's holiday.

• Cash ACGBs are 4-6bps richer with the AU-US 10-year yield differential at -16bps.
• The bills strip richer, with pricing +1 to +4.
• RBA-dated OIS pricing is showing a 25bp rate cut in July as a 72% probability, with a cumulative 75bps of easing priced by year-end (based on an effective cash rate of 3.84%).
• Today, the local calendar has been light.
• The focus remains on tomorrow's April CPI, which is forecast to moderate to 2.3% y/y from 2.4%. The trimmed mean has been around 2.7% y/y for four consecutive months. There will be limited updates to the services components being the first month of the quarter.
• Some of the components of Q1 GDP are also released this week, namely construction (Wed) and private capex (Thu).
• April retail sales print on Friday and are projected to rise 0.3% m/m after increasing the same amount in March.
• The AOFM plans to sell A$1200mn of the 4.25% 21 March 2036 bond on Friday.

The BBDXY has had a range of 1208.48 - 1210.80 in the Asia-Pac session, it is currently trading around 1210. “The ECB’s Gediminas Simkus says there’s a growing danger that inflation will fall short of the central bank’s 2% target due to trade friction and a stronger euro, adding there’s scope for a rate cut next month”(BBG). “Donald Trump’s erratic policies offer a “prime opportunity” to strengthen the euro’s international role as a reserve currency, letting the EU enjoy lower borrowing costs and protections from sanctions, Christine Lagarde said.”(BBG)

• EUR/USD -  Asian range 1.1383 - 1.1407, Asia is currently trading 1.1390. EUR has had a quiet day in the Asian session. What stood out from the price action on Friday was how well the EUR held up in the face of a potential 50% increase in tariffs, and it was again the USD that took the brunt of the impact. This clearly shows the market's current outlook and leans into the growing “sell America “ theme. Dips back to 1.1200/1300 should be supported.
• GBP/USD - Asian range 1.3557 - 1.3587, Asia is currently dealing around 1.3565. The GBP is breaking the Pivotal Weekly Resistance in the 1.3500 area, all eyes will be on how the market reacts up here as most participants return. A sustained break though would signal a potential acceleration of the trend higher.
• USD/CNH - Asian range 7.1712 - 7.1851, the USD/CNY fix printed 7.1876. Asia is currently dealing around 7.1840. Sellers should be found on a bounce back towards the 7.2200 area again. Andreas Steno Larsen on X : The elephant in the room. USDCNH needs to go to 6.80 at least. https://x.com/AndreasSteno/status/1926115935200440525
• Cross asset : SPX +0.89%, Gold $3340, US 10-Year 4.48%, BBDXY 1210, Crude oil $61.31
• Data/Events : Ger Gfk Consumer Confidence, France CPI, EZ Consumer Confidence

NZGBs closed richer and at session bests, with benchmark yields 3-4bps lower. 

• Swap rates closed 2-4bps lower, with the 2s10s curve flatter.
• The RBNZ decision is announced tomorrow with the OCR widely expected to be cut 25bp to 3.25%, bringing total easing this cycle to 225bp.
• 23 out of 24 analysts surveyed by Bloomberg are forecasting this outcome.
• Given heightened uncertainty, the MPC is likely to retain its easing bias again, stating it has “scope” to cut rates further if required and its updated OCR path will be scrutinised to this end. A downward revision bringing the terminal to below 3%, estimated 'neutral', would signal a need for accommodation.
• The attention will be on the medium-term which is likely to show a softer outlook driven by weaker trading-partner growth due to recent global uncertainty. The RBNZ said in April that “on balance, these developments create downward risks to the outlook for economic activity and inflation in New Zealand”. See MNI RBNZ Preview here)
• Markets continue to price in 25bps of easing for tomorrow's meeting, with 64bps expected by November 2025.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% May-30 bond and NZ$225mn of the 4.25% May-36 bond.