FOREX: G10 Wrap - Can The USD Catch Up With Stocks ?

TYM5 is 111-17, +0-10 from closing levels in today's Asia-Pac session.

• According to MNI's technicals team, TYM5 remains well off the initial technical resistance of 111-22.5 (today's intraday high) - next resistance above at 112-01 (High Mar 4 and a bull trigger).
• Cash US tsys are slightly richer in today’s Asia-Pac session after small losses early.
• Month/quarter-end rebalancing flow tempered Monday morning's risk-off support ahead of Wednesday's US tariff deadline.
• From our latest US Treasury Deep Dive (Here) - the Treasury isn’t expected to raise the size of its coupon offerings until Q4 2025 at the earliest, with consensus on such a shift moving following the February refunding announcement to Nov 2025/early 2026, from Aug/Nov 2025 prior.
• Today’s US calendar will be highlighted by JOLTS and ISM Mfg data. 

USD/CNH sits back in 7.2750/60 region, up around 0.15% so far today, but within recent ranges. Monday's low in the pair came in at 7.2531, which also marked both month and quarter end. Onshore USD/CNY spot is a little higher as well, last near 7.2650, leaving CNH-CNY basis as positive. 

• USD/CNH remains within recent ranges and we are back above all key EMAs. We tested sub the 20, 50 and 100 day yesterday. The 200-day is further south near 7.2400. Note as well the simple 200-day MA, which is still near 7.2200, helped mark lows in March. Recent highs, towards the end of March were just above 7.2820.
• We are seeing a better onshore equity tone, albeit modestly, while Hong Kong shares are up over 1%. The better Caixin PMI print from earlier has been cited as a positive. This is yet to aid CNH though. The currency is also lagging a slightly softer USD tone against the majors, but aggregate moves are very modest.
• Focus remains on Wednesday's US reciprocal tariff announcement. Given China's large trade surplus with the US and tariffs already placed by the Trump Administration on China, further tariff hikes could work against the yuan.
• Still, Trump reiterated earlier today that some type of deal around TikTok was still possible. A weaker yuan may also weigh on relations with the US.
• In terms of the 1 month risk reversal level, it is still in positive territory, but above recent highs. 1 month implied vol was last at +4.4%, towards the bottom end of recent ranges (see the chart below). This fits with any upside in USD/CNH still being gradual rather than dramatic. It's a similar story for the 1 week equivalent, albeit with the risk reversal back in negative territory. 

Fig 1: USD/CNH - 1 month Risk Reversal & Implied Vol 

Source: MNI - Market News/Bloomberg 

The RBA left rates unchanged at 4.10% today, as was widely expected given the cautious tone following February’s 25bp cut. One of the largest changes to the statement was what was not included. February’s comment that “the Board remains cautious on prospects of further policy easing” was removed, thus it’s keeping its options open going forward given that “underlying inflation continues to ease” as expected, but it is still “cautious about the outlook”. Policy remains restrictive but its reduction at the previous meeting was omitted. 

• As expected, the RBA looked through the drop in employment in February repeating that “labour market conditions remain tight” as underutilisation is “relatively low” and businesses continue to “suggest that availability of labour is still a constraint”. However, the risk that the labour market could be tighter than the RBA thinks was removed from the statement.
• The paragraph on upside risks was also excluded with risk “on both sides”. However, the tone on private demand was more positive as it “appears to be recovering” and “real household incomes have picked up” with “some measures of financial stress” easing. But soft demand continues to make passing on higher costs to customers “difficult”.
• Given that US reciprocal tariffs are due to be announced this week, there were further comments on this issue including that inflation “could move in either direction”. They are impacting “confidence globally” which would “likely be amplified” if tariffs increase or there is retaliation. The developments are expected to weigh on global growth.
• Deputy Governor Hauser said that changes to the Board’s communication would be discussed at this meeting. There was no mention of it in the statement but Governor Bullock is likely to be questioned on this at the press conference at 1530 AEDT.
• Statement can be found here.