AUSSIE BONDS: AU-US Curve Correlation Tumbles Over The Past Week
The cross-market curve correlation between Australia and the U.S. has collapsed over the past week, reflecting a shift in focus toward domestic factors rather than global or U.S.-centric drivers.
- This marks the sixth such episode since early 2024, with all but one coinciding with key Australian CPI releases, including this week’s decline.
- The exception was in early December when concerns over Australian economic growth—culminating in a weaker-than-expected Q3 GDP print—drove the divergence.
- In previous instances, the correlation rebounded quickly to near-peak levels, suggesting these dislocations have typically been short-lived.
- However, global yield curve correlations tend to weaken during shifts from synchronized policy tightening to divergent easing cycles. With central banks now charting different paths, the current low correlation may prove more persistent this time around.
Figure 1: Rolling 10-day Correlation – ACGB 3/10 Curve Vs. US Tsy 2/10 Curve
Source: MNI – Market News / Bloomberg
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JGB TECHS: (H5) Returns Lower
- RES 3: 149.55 - High Mar 22 (cont)
- RES 2: 147.74 - High Jan 15 and bull trigger (cont)
- RES 1: 144.48/146.53 - High Nov 11 / High Aug 6
- PRICE: 142.13 @ 15:59 GMT Dec 30
- SUP 1: 141.65 - Low Dec 30
- SUP 2: 141.56 - 1.764 proj of the Aug 6 - Sep 3 - 9 price swing
- SUP 3: 141.05 - 2.000 proj of the Aug 6 - Sep 3 - 9 price swing
Markets slipped on the hawkish Fed and are yet to fully recover, touching 141.65 on the way lower. Medium-term trend signals on the continuation chart continue to point south. A resumption of the trend would pave the way for a move towards 141.56, a Fibonacci projection point on the continuation chart. A stronger recovery would open 144.48, the Nov 11 high. Further out, key resistance is at 146.53, the Aug 6 high (cont).
LNG: Gas Prices Rise As January Forecast To Be Cold
US gas prices rose sharply on forecasted colder weather in January. European February gas prices jumped to EUR 49.00 at the start of Monday’s trading and then eased to finish up 0.5% at EUR 48.23. They are up 0.9% this month and 23% higher than the mid-December low. There is significant uncertainty going into 2025 with the January 1 expiry of the deal allowing Russian gas to transit through Ukraine.
- US natural gas (February contract) rose over 15% on Monday to $3.92 after a high of $4.20 earlier, 24% higher than Friday’s close. It is now up 22.2% in December. The increase was driven by an expected increase in heating fuel demand as the National Weather Service is forecasting a significant probability of lower-than-average temperatures in the east and Midwest over the coming two weeks, according to Bloomberg.
- Freezing weather could also disrupt US gas production in Appalachia, believes AnalytixAI.
- Forecasters are also expecting mid- and northern-Europe’s winter to shift colder in January with possibly less wind, which will impact power generation and increase demand for gas. The cold snap could last into February, believes Maxar. Temperatures in Mediterranean Europe are forecast to be around average. Current storage levels are now below 75%.
- Bloomberg estimates that around 5% of Europe’s gas consumption would be impacted by the cessation of Russian flows through Ukraine, which now looks likely. They are expected to be replaced by supplies from Norway and LNG imports from the US.
AUSSIE 10-YEAR TECHS: (H5) Soft Close
- RES 3: 96.975 - High Mar 14
- RES 2: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- PRICE: 95.555 @ 15:55 GMT Dec 30
- SUP 1: 95.460 - Low Dec 20
- SUP 2: 95.275 - Low Nov 14
- SUP 3: 94.734 - 1.0% 10-dma envelope
Aussie 10-yr futures recovered well having slipped into the Monday close, undermining early December strength. This works against the previous short-term bull cycle. A continuation higher would refocus attention on resistance at the 96.207 level, a Fibonacci retracement. On the downside, a stronger bearish reversal would instead expose 95.275.
