FOREX: Dollar Steady, US CPI & FOMC Coming Up
Outside of a modest pop higher in AUD, G10 FX trends have been very quiet ahead of key US event risk later, with CPI due, followed by the FOMC later on.
- The BBDXY sits around 1266.45, little changed for the session, but close to recent highs. US equity futures are up a touch, while US yields are firmer, but gains are less than 1bps.
- Regional equity markets are mixed, Hong Kong and China markets are mostly lower.
- USD/JPY is around 157.15/20 little changed for the session. We had stronger than expected PPI data earlier, but this didn't impact sentiment.
- AUD/USD has recovered from earlier lows, last near 0.6615, which is around option expiry strikes for NY cut later today. So that may be playing a role, while slightly lower USD/CNH levels are another potential positive. China May inflation data was close to expectations, but isn't suggesting a sharp pick up in domestic demand.
- NZD/USD is relatively steady, last around the 0.6145 level.
- Later the Fed is expected to hold rates steady but increase its 2024 and 2025 median rate forecast. US May headline CPI is projected to be steady at 3.4% while core should ease 0.1pp to 3.5%. The ECB’s Tuominen, Schnabel, Buch, de Guindos and McCaul, and BoC’s Macklem speak.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
BONDS: NZGBs Little Changed As Inflation Expectations Fall
NZGBs are little changed today, earlier inflation expectation data showed a drop in both the 1yr and 2yr, while food prices increased in April to 0.6% from -0.5% in March. US Tsys futures are a touch higher, while the curve has steepened slightly. Elsewhere in the rates space JGB futures gapped lower on the BoJ bond buying announcement, which reduced purchases in the 5-10 year tenor compared to the late April buying op.
- US Treasury futures have ticked up just a touch with the 10Y up (+ 01+) to 108-24, ranges have been tight while volumes have been on the lower side.
- Earlier, the Performance Services Index fell to 47.1 from 47.2 the lowest since October 2022, Food prices rose 0.6% in April from a decline of -0.5% in March, and finally the 1-year inflation expectations eased to 2.73% from 3.22% in Q1 and the 2-year expectations eased to 2.33% from 2.50% in Q1.
- NZGB yields erased the mornings moves higher to trade near best levels for the day now, with yields closing about 0.5bps richer.
- Swap rates are 1-3bps lower. The NZD 2y OIS Swap has typically traded in line with the 2yr RBNZ inflation expectation but has broken that correlation over the past year. Chart 1
- RBNZ dated OIS is 2-3bps softer out past the August meeting with a cumulative 47bps of easing is priced by year-end
- Looking Ahead: REINZ House Sales on Tuesday
Source - BBG
JGBS: Eyeing Downside Test Of Late Apr Lows As BoJ Reduced 5-10 JGB Purchases
JGB futures maintain a firm downside bias in afternoon dealings. We were last around 143.92, -.34. This is slightly up from session lows (143.86). April 26 lows rest back at 143.61. Beyond that lies 143.44, which is a key support point.
- Sentiment has remained weak since the BoJ bond buying op curtailed purchases in the 5-10yr tenor space compared with the late April operation (by ¥50bn). Whilst the amount purchased was still within the projected range for the current quarter it will likely sharpen focus around the likelihood of reduced purchases as we progress further into 2024.
- USD/JPY dipped initially on the news, but hasn't seen any downside follow through. The latest from our Tokyo Policy team notes risks the weaker yen trend could hasten the policy tightening process (see this link).
- In the cash JGB space, the 10yr yield is above 0.94%, +3bps higher. From the 5 yr to 40yr tenor we are around 3bps in yield terms. 10yr swap is above 1.01%, while the 20 and 30yr tenors are up 5bps in yield terms.
- Tomorrow, we have the PPI for April, along with the 5yr debt auction.
MNI EXCLUSIVE: Weaker Yen Could Lead BoJ To Tighten
The weak yen could hasten the BOJ's decision to tighten policy --On MNI Policy MainWire now, for more details please contact sales@marketnews.com.
