CNH: CNY Basket Down For 6th Straight Week, CNH-CNY Basis Back To Zero
USD/CNH has spent most of the Friday session recovering ground (off around 0.20% in latest dealings), although near 7.2840/50, we are still comfortably sub highs this week near 7.3250. CNH is tracking a little over 0.20% firmer versus the USD over the past week, around a third of the broader USD index loss over the same period (for the BBDXY index).
- Against the majors, CNH has lost ground EUR and the EU related currencies, but rebounded against the yen. The CNY CFETS basket tracker is down, last near 100.06 (per BBG).
- Indeed, this index has fallen in each of the last 6 weeks, see the chart below. The other line is the USD BBDXY index, note the strong directional correlation between the two series. The yuan has been outperforming during bullish USD periods and underperforming during USD bearish periods.
- In the current context, the authorities arguably won't mind softer NEER conditions, given still challenging domestic growth conditions and a good degree of uncertainty facing this year's trade outlook.
- Spot USD/CNY onshore is little change (close to 7.2850), with earlier dips under 7.2800 supported. This leaves little basis between offshore and onshore spot. The average basis between USD/CNH and USD/CNY has been just over 100pips in the past 12 months.
Fig 1: CNY CFETS Basket & USD BBDXY Index
Source: MNI - Market News/Bloomberg
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STIR: BOJ Dated OIS Firms Back To Pre-Dec MPM Levels
BOJ-dated OIS pricing has shifted notably following BoJ Deputy Governor Himino's speech yesterday. The speech was interpreted as another indication that the policy board is leaning toward a 25bp rate hike at its upcoming meeting on January 23–24.
- Himino shared his views on two factors – the momentum of domestic wage growth and US President-elect Donald Trump’s policies. These align with points raised by Governor Kazuo Ueda in December, where he identified them as pivotal in determining the timing of the next rate hike.
- Current OIS pricing has largely returned to pre-December MPM (Monetary Policy Meeting) levels. On Monday, pricing was 1–6bps softer across meetings compared to pre-December MPM levels, with January 2025 leading the decline.
- Market expectations currently indicate: a 62% probability of a 25bp hike in January; a cumulative 83% chance by May; and a full 25bp increase not fully priced in until May 2025.
- On Monday, only a 28% probability of a 25bp hike in January was priced, with a full 25bp increase not fully priced until June 2025.
Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM (December)
Source: MNI – Market News / Bloomberg
AUSSIE BONDS: Subdued Session Ahead Of US CPI
ACGBs (YM -2.0 & XM -2.0) are slightly cheaper after trading in a narrow range in today's Sydney session.
- Cash US tsys are flat to 1bp richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
- Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential at -14bps.
- Swap rates are 2-3bps higher.
- The bills strip flat to -1 across contracts.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut is fully priced for April (101%) now, with the probability of a February cut at 68% (based on an effective cash rate of 4.34%).
- Today, the local calendar is empty.
- Expectations of strong pricing at auctions were confirmed, with the latest ACGB Dec-34 supply achieving a weighted average yield that printed 0.70bp through prevailing mids (per Yieldbroker). The cover ratio also improved, rising to 2.8875x from 2.8375x.
- AOFM Bond issuance will issue A$700mn of the 2.75% 21 November 2027 bond on Friday.
