AUDNZD: MNI Insight: AUD/NZD FX - Cyclical Drivers Aren't Turning Around Yet
- The AUD/NZD cross has stabilized somewhat in the past session around the 1.0900 level, but it remains below all key simple MAs and EMAs. We are now down over 5% from late September highs.
- Still, cyclical drivers that have correlated well with the AUD/NZD cross this year, like swap differentials and the relative terms of trade backdrop, aren't pointing to a turnaround in sentiment for the cross yet. The relative central bank pricing outlook also remains skewed in NZD's favor, underpinned by a backdrop of relative data surprises in NZD's favor.
- China exiting its Covid-zero stance would arguably boost AU's commodity prices more than NZ's basket. This is a risk to be mindful of, although official rhetoric from China hasn't suggested a near term change is imminent. The other factor that could stabilize the cross is renewed global equity market weakness. Higher levels in the cross have coincided with weaker global equities this year, particular in September/early October. This fits with sensitivity to global risk periods for the two currencies as measured by their respective current account balances.
- See this link for the full piece.
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US TSYS: A Touch Richer, Philippines Issuance Pushes Space Off Best Levels
Tsys continue to coil in relatively narrow ranges, with the major benchmarks running 0.5-1.5bp richer across the curve at typing. News of the Philippines starting the marketing a 3-part USD bond (5-, 10- & 25-Year paper) is applying some light pressure, with the space back from best levels in recent trade. Some spill over from the eventual richening in NZGBs & ACGBs post-RBNZ likely provided support before that. TYZ2 operates in the middle of its 0-07+ range, last -0-03 at 113-13.
AUSSIE BONDS: Firmer On Net Post-RBNZ
ACGBs have tracked the post-RBNZ gyrations in NZGBs, initially cheapening before richening, with a no lasting bearish impulse derived from the in line with expected 50bp OCR hike across the Tasman (which was coupled with a 50/75bp rate hike debate). See our earlier bullets for more colour on that matter. YM & XM have showed through their overnight peaks, but there hasn’t been much follow through. The former is +5.5, while the latter is +9.5. Wider cash ACGB trade sees 5-9bp richer, with 10s outperforming. Bills run -1 to +7 through the reds, with twist flattening in play.
RBA: RBA Pivot Signals Weaker AUD Ahead
The events of the last 24 hours have made it clear that the RBA and RBNZ are on different monetary policy paths. The RBNZ hiked 50bp to 3.5%, as expected, in contrast to the RBA’s less-than-expected 25bp to 2.6% (see MNI Review here).
- Given the RBA is the first to pivot, a gap has begun to open up between it and the majors (see chart below) which is likely to widen given their preparedness to sacrifice growth to control inflation, in contrast to the RBA. This is likely to put downward pressure on the AUD generally and thus push up imported inflation (something the RBNZ commented on in regards to NZD weakness).
- The RBNZ began its tightening cycle 7 months before the RBA, yet the latter was the first of the major central banks to slow its pace of hiking.
- While both central banks have made it clear that they are committed to price stability, the RBNZ’s October statement remained hawkish whereas the RBA’s was balanced. The policy rate spread is likely to grow.
Source: MNI - Market News, Refinitiv
