JGBS: Curve Twist Steepens, Futures Back To Flat
Futures operated in a contained range in the grander scheme of things, failing to challenge the extremities witnessed in the overnight session during the Tokyo morning, with gyrations in U.S. Tsys in the driving seat for the most part, outside of the early super-core CPI-related blip lower, while weakness in the longer end of the JBG curve became more pronounced as the session wore on. JGB futures hit the lunchbreak +2, while cash JGBs were 1bp richer to 4bp cheaper as the curve twist steepened. The swap curve also twist steepened, with swap spreads generally narrower outside of 10s.
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RBNZ: Orr against Altering Inflation Target
Orr plays down the need to alter the Bank's inflation target on a couple of occasions.
RBNZ: Orr Notes considerably Less Impact From Reinsurer Flows this Time Around
Orr flags “considerably less” economic impact from reinsurer capital inflows vs. the ’11 earthquakes when it comes to the recent cyclone given underinsurance and less damage than was seen back in ’11.
AUDNZD: Rate Differentials Widen On RBNZ, Australia WPI, Cross Back Below 1.1000
2-Year AU-NZ Rate differentials have widened today post the RBNZ rate decision and a softer than forecast WPI print in Australia.
- 2-Year Rate Differentials sit at ~-112bps, around 8bps wider today. The chart below overlays AUD/NZD against the 2yr spread.
- The OCR now sits at 4.75% after the RBNZ raised the rate 50bps. The bank still sees the rate peaking at 5.5%, they also see a recession starting this year. There had been some speculation the bank would pause today, given the impact of Cyclone Gabrielle, so today's outcome has likely aided NZD at the margin. Governor Orr's press conference is currently underway.
- In Australia Q4 Wages Price Index surprised to the downside, rising 0.8% QoQ vs 1.0% exp 3.3% YoY vs 3.5% exp. The RBA had also forecasted wage growth of 3.5% YoY.
- AUD/NZD has retreated from multi-month highs seen on Monday. The cross now sits below the $1.10 handle.
- The technical picture for the cross is still bullish, with bulls looking to target $1.1101 61.8% retracement of the Sep-Dec down leg. Bears first target a break of the 200-day EMA ($1.0920) to target 19 Jan low at $1.0737.
Fig 1: AUD/NZD Versus 2yr AU-NZ Swap Spread
Source: MNI/BLoomberg
