AUSSIE BONDS: Bear Flattening After RBA Points To Multiple Hikes
Aussie bonds were pressured after the RBA board delivered the expected 25bp hike, while pointing to further rate hikes in the months ahead (we place emphasis on the plural in future hikes). Terminal cash rate pricing has shifted above 3.90% to reflect this, after printing around 3.75% pre-decision.
- The Bank also tipped its hat to firm domestic demand resulting in more meaningful inflationary pressure, albeit while providing a sense of increased worry re: the health of some households (alongside some firmer language against the risks of a de-anchoring of inflation expectations, although it reaffirmed that expectations remain well anchored at present).
- The Bank didn’t allude to its updated underlying inflation forecasts (which will be published on Friday), while it only expects headline inflation to return to the upper end of the target range in ’25.
- Aussie bond futures breached their early session lows on the move, after firming off their early Sydney lows ahead of the RBA decision. YM finished -16.0, while XM was -13.5, a touch off their respective post-decision bases, while wider cash ACGBS sit 7.5-15.5bp cheaper as the curve bear flattens, reflecting the pricing of more aggressive RBA tightening near-term.
- The AU/U.S. 10-Year yield spread widened post-RBA, pushing out by half a dozen bp on the day to ~-2bp, briefly testing above parity.
- A$1.0bn of ACGB Nov-33 supply headlines domestically on Wednesday.
Source: MNI - Market News/Bloomberg
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USDCAD TECHS: CAD Rips on Jobs Data
- RES 4: 1.3855 High Oct 21 - Nov 16 bear leg
- RES 3: 1.3808 High Nov 3 and a key resistance
- RES 2: 1.3751 High Nov 4
- RES 1: 1.3680/3705 High Jan 3 / Dec 16 and the bull trigger
- PRICE: 1.3470 @ 16:15 GMT Jan 6
- SUP 1: 1.3467 Low Jan 6
- SUP 2: 1.3385 Low Dec 5 and a key near-term support
- SUP 3: 1.3317/3226 Low Nov 24/25 / Low Nov 15 and bear trigger
- SUP 4: 1.3205 61.8% retracement of the Aug 11 - Oct 13 rally
USDCAD finished the week on a distinctly bearish note, with solid Canadian jobs data prompting a broad wave of CAD strength. This put prices below the week’s 1.3470 low and within range of key support at the 1.3385 level - the Dec 5 low. Further weakness will be needed, however, before the bullish trend condition fades and the bear trigger at 1.3226 can be considered. Last month's break of trendline resistance, drawn from the Oct 13 high, strengthened the bullish case and this has opened 1.3751, the Nov 4 high.
AUDUSD TECHS: Remains Above The 50-Day EMA
- RES 4: 0.6976 2.00 proj of the Oct 13 - 27 - Nov 3 price swing
- RES 3: 0.6956 High Aug 30
- RES 2: 0.6909 76.4% retracement of the Aug 11 - Oct 13 downleg
- RES 1: 0.6886/6893 High Jan 4 / High Dec 13 and the bull trigger
- PRICE: 0.6847 @ 16:12 GMT Jan 6
- SUP 1: 0.6699/29 50-day EMA / Low Dec 20 and key S/T support.
- SUP 2: 0.6585 Low Nov 21 and a key short-term support
- SUP 3: 0.6531 50.0% retracement of the Oct 13 - Dec 13 climb
- SUP 4: 0.6500 Round number support
AUDUSD finished the week close to the best levels, bouncing off support after a spell of weakness Tuesday. This keeps a bullish theme in place and the recovery Wednesday supports the view that moves lower should be considered corrective. Support at the 50-day EMA - at 0.6699 - remains intact for now. A clear break of this EMA is required to suggest scope for a deeper pullback and 0.6629, the Dec 20 low, is seen as a key short-term bear trigger. A resumption of gains would refocus attention on 0.6893, the Dec 13 high and bull trigger.
US TSYS: Yields Tumble With Average Earnings, ISM Services Misses
- Cash Tsys have swung from modest cheapening through 2-10Y tenors at the start of the US session to a substantial rally. The latter sees front end to belly yields currently down 21-22.5bps after notably weaker than expected average hourly earnings growth (offset somewhat by a new recent low for the u/e rate) before a significant miss for ISM Services as new orders cratered.
- US CPI on Jan 12 will most likely still be pivotal but for now, the market leans more heavily towards a 25bp hike from the FOMC on Feb 1 with 32bp priced vs 36-37bp prior to the data and the implied terminal cut 10bps to 4.95% for June (cumulative 62bps of hikes).
- Further along the curve, still significant rallies of 15bp for the 10Y (led by lower real yields, in turn pushing risk assets materially higher) have limited the steepening in 2s10s to just +5.5bps at -68bps, within yesterday's range. .
- TYH3 climbs to session highs of 114-09+ (+1-09) on very high volumes currently at 1.85M. It's easily through resistance at 113-15+ (Dec 23 high) to next eye 114-17 (76.4% retrace of Dec 13 – 30 bear leg).
- Looking to next week, Powell talking twice on Tue (Jan 10) at the Riksbank event will be firmly in focus, all with an eye on CPI on Thu (Jan 12).
