AUSSIE 3-YEAR TECHS: (H5) Monitoring Resistance

ACGBs (YM +3.0 & XM +3.5) are richer with US tsy futures. TYH5 is at 108-23, +0-05+ compared to closing levels. Due to Martin Luther King Day, there was no cash US tsy trading yesterday.

• Cash ACGBs are 3-4bps richer.
• Swap rates are 2-3bps lower, with the 3s10s curve little changed.
• The bills strip has modestly bull-flattened, with pricing flat to +3.
• RBA-dated OIS pricing is flat to 3bps softer across meetings today. A 25bp rate cut is more than fully priced for April (105%), with the probability of a February cut at 67% (based on an effective cash rate of 4.34%).
• The local calendar is light this week after key December labour market data last Thursday. The highlights are the Westpac Leading Index tomorrow and S&P Global PMIs (P) on Friday. The focus is now on Q4 CPI data released on Wednesday, January 29.
• The AOFM plans to sell A$800mn of the 2.75% 21 June 2035 bond on Wednesday and A$700mn of the 1.50% 21 June 2031 bond on Friday. 

Q4 CPI data including the RBNZ’s estimates of core are released on Wednesday. Bloomberg consensus forecasts for headline inflation are in line with the RBNZ’s November projections at 2.1% y/y, 0.1pp moderation from Q3. The expected quarterly increase of 0.5% is slightly higher than the RBNZ’s 0.4%. The Q3 sector factor model measure of core was at 3.4%. Following the sharp contraction in Q3 and Q4 growth, another 50bp rate cut on February 19 is likely, especially if inflation prints around the band’s mid-point.

• Quarterly headline inflation estimates range from +0.3% to +0.6% resulting in annual rates of 2% to 2.3% y/y. Westpac is in line with consensus’ 0.5%/2.1%, while Kiwibank and ASB are slightly lower at 0.4%/2.1% and ANZ higher with 0.5%/2.2%. BNZ is the outlier amongst the local banks forecasting the CPI to rise 0.6% q/q and 2.3% y/y due to an above-consensus estimate for tradeables inflation.
• Domestically-driven non-tradeables inflation will be watched closely. It is forecast to rise 0.8% q/q and 4.7% y/y down from 1.3% q/q & 4.9% in Q3. Consensus is in line with the RBNZ. ANZ, BNZ and Westpac are all at consensus, while Kiwibank and ASB are lower forecasting 0.6% q/q and 0.7% respectively.
• In November, the RBNZ forecast Q4 tradeables prices to fall 0.2% q/q and 1.5% y/y, but Bloomberg consensus is higher projecting a 0.1% q/q rise (forecasts range from -0.2% to +0.4% q/q) resulting in a 1.2% y/y drop. Kiwibank and ASB are consistent with consensus, while Westpac is lower forecasting a 0.1% q/q decline, ANZ and BNZ are higher with +0.2% q/q and +0.4% q/q respectively.

Oil prices fell on Monday following news that the Trump administration doesn’t intend to implement tariffs immediately but will study various trade policies. A confirmed plan to increase in US crude production at the inauguration and the start of the Gaza ceasefire also weighed. The USD index fell 1.1%.

• WTI is down 1.3% to $76.37/bbl following a trough of $75.82, below initial support at $76.16. The benchmark is still 7.2% higher in January. Key resistance is at $79.48.
• Brent fell 1.2% to $79.86/bbl after an intraday low of $79.42. It is now up 7% on the month. It remains in an uptrend though with key resistance at $79.50. Initial support is at $79.62 with key support at $77.44, 20-day EMA.
• The Trump administration has begun and the President has said he will fill the SPR “right to the top” after it was run down by President Biden following Russia’s invasion of Ukraine. It is over 300mn barrels below capacity. He also said that American energy will be exported “all over the world” and that he would bring down domestic prices.
• Canada is a large oil exporter to the US and Trump has said that its crude won’t be exempted from tariffs. There is some relief that trade restrictions aren’t imminent, opening the possibility of negotiations.
• The Iran-backed Houthis have said they will stop attacking US and UK ships in the Red Sea due to the start of the Gaza ceasefire. Israeli ships will remain targets.