OIL: Crude Higher As Geopolitical Risk Premium Builds
Oil prices are higher during APAC trading driven by heightened geopolitical tensions in the Middle East as Iran-backed Houthis targeted Ben Gurion airport in Tel Aviv. The US has said that it will continue to attack Yemen’s Houthis. Also Russia struck Ukrainian energy infrastructure despite being prepared to agree to an energy ceasefire. Thus oil’s geopolitical risk premium is gradually growing. Benchmarks have also continued to find support from yesterday’s EIA data showing robust US product demand.
- WTI is up 0.6% to $67.31/bbl, close to the intraday high. It fell to $67 early in the session. Brent has exceeded $71 today and is currently 0.5% higher at $71.16/bbl, around its peak. The USD index is down 0.1%.
- Crude markets don’t seem concerned at this point by the Fed’s downward revision to growth and upward to inflation and Chair Powell saying that the outlook is highly uncertain. The decision to slow the pace of QT may have supported risk appetite.
- Chevron had a meeting with US President Trump about its licence to export oil from Venezuela, which was revoked. According to the WSJ, Trump is now considering extending the licence.
- Later US Q4 current account, jobless claims, March Philly Fed and February existing home sales data print. The ECB’s Lagarde and Lane speak and the BoE is expected to leave rates unchanged. There is also UK labour market data.
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AUD: A$ Little Changed Post RBA, But Firmer On Crosses
AUD/USD is holding near 0.6350 in latest dealings. We got to highs of 0.6368 post the RBA decision, as the central bank cut rates by 25bps as expected, but then then the accompanying statement was cautious around further cuts. Pre RBA levels, we were just under 0.6340.
- For AUD techs, not much has changed. The pair has cleared 0.6331, the Jan 24 high and a key short-term resistance. The breach highlights a stronger reversal and opens 0.6414, a Fibonacci retracement. Note that MA studies remain in a bear-mode position.
- Broader USD sentiment is positive, which may be limiting AUD upside. The BBDXY index remains in positive territory, up close to 0.20%. The A$ is outperforming on crosses though, up to 1.1120 for the AUD/NZD cross (+0.35%). AUD/JPY is up around 0.25%, the pair last near 96.50/55.
- AU-US 2yr swap spreads are little changed, last near -41bps. We ended Monday's session at -40bps. We are in from recent wides though of beyond -50bps from last week.
- Options markets aren't expecting AUD fireworks in the near term. The implied overnight range in AUD/USD is 0.6306-0.6392, with a 81.4% probability. This is little changed from pre-RBA levels.
- Coming up in a little over 30mins we have RBA Governor Bullock's press conference.
AUSSIE BONDS: RBA Cuts But Is Already Cautious About Further Cuts
ACGBs (YM -1.0 & XM -1.5) are slightly weaker after the RBA Decision. To summarise the statement:
- The RBA Board lowered the cash rate target to 4.10% as inflation continues to ease faster than expected. Underlying inflation fell to 3.2% in Q4 2023, with subdued private demand and easing wage pressures providing confidence in inflation’s downward trajectory. However, labour market data remains strong, suggesting ongoing tightness.
- The Board remains cautious about further policy easing amid domestic and global uncertainties. While inflation is expected to return to target, risks remain.
- The Board will continue to monitor economic conditions and remains committed to ensuring inflation sustainably reaches the 2–3% target range while maintaining price stability and full employment.
- Cash US tsys are 1-4bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s holiday.
- Cash ACGBs are little changed on the day with the AU-US 10-year yield differential at -5bps.
- Swap rates are flat to 1bp higher on the day.
- The bills strip little changed.
- RBA-dated OIS pricing is slightly firmer after the RBA Decision across meetings today.
JGBS AUCTION: Weak Demand Metrics For 20Y Auction
The 20-year JGB auction delivered poor results across key metrics. The low price significantly underperformed dealer forecasts, which were set at 99.65 according to a Bloomberg poll. Additionally, the cover ratio declined to 3.0557x from 3.7891x in the previous auction, while the auction tail lengthened dramatically to 0.55 from 0.04.
- As noted in the auction preview, today’s offering featured an outright yield at a cycle high, 5bps higher than last month’s auction.
- However, the 10/20 yield curve had flattened over the past month, reaching its lowest point since mid-2023 and the 20-year JGB was at its most expensive valuation within the 10/20/30 butterfly since late 2022.
- This result goes against the strong performances observed in the 30-year JGB auction earlier this month.
- Post-auction, the 20-year JGB has traded 3bps cheaper, reflecting the auction's poor reception.
