CNH: Modest Outperformance, Aided By Lower US Yields, Official PMIs On Tap Today

ACGBs (YM +1.0 & XM +2.5) are slightly richer ahead of today’s Q4 CPI print. This comes despite a material long-end-led rally in US tsys overnight. US tsys finished Tuesday’s NY session with a twist-flattening of the curve, pivoting at the 5s. Yields were 2bps higher to 6bps lower. Higher than expected JOLTS Job Openings pressured short-end US tsys early. Long-end US tsys have outperformed since the US Tsy announced a cut in its borrowing estimate from $816B to $760B late Monday. The focus is now on tomorrow's refunding announcement.

• Cash ACGBs are 1-3bps richer, with the AU-US 10-year yield differential 1bp tighter at +8bps.
• Swap rates are 1-2bps lower.
• The bills strip is little changed.
• RBA-dated OIS pricing is slightly softer across meetings. A cumulative 44bps of easing is priced by year-end.
• Today, the local calendar sees Q4 CPI print. This will be a crucial input into next week's RBA meeting deliberations. Bloomberg consensus expects headline CPI to print +0.8% q/q and 4.3% y/y versus +1.2% and 5.4% prior. Trimmed Mean CPI is expected to show +0.9% q/q and 4.3% y/y versus +1.2% and 5.2% prior.
• The AOFM plans to sell A$800mn of 3.75% 21 May 2034 bond on Friday, instead of its usual Wednesday window.

USD/CNH was range bound through Tuesday's session. Post the Asia close we couldn't breach 7.1830 on the downside, while highs were capped at 7.1925/30, which came post better than expected US JOLTS data. For USD/CNY we ended Tuesday trade lower at 7.1778. The CNY NEER (J.P. Morgan Index) was basically unchanged at 124.14.

• On the data front today we have the official Jan PMI prints on tap. The market consensus for the manufacturing PMI is 49.3 versus 49.0 prior. The non-manufacturing PMI or services print is expected at 50.6 (prior was 50.4).
• Market expectations around easier policy settings continue to firm though, with onshore bond yields falling yesterday, with the 10yr yield hitting multi decade lows (see this link for more details).
• US-CH yield differentials are divergent though, with the 2yr spread higher, but the 10yr spread trending lower, hence perhaps why these trends have had a limited impact on CNH at this stage.
• In the equity space, to recap we had sharp falls in onshore bourses, the CSI 300 nearly off 1.8%, in the wake of the Evergrande liquidation order in HK and a combination of continued economic fear/want for policy and equity market-specific support, provided headwinds. The Golden Dragon Index fell 2.26% in US trade on Tuesday.

NZD/USD was the top performer against the USD in Asia trading yesterday. We tested highs from the 24th of 0.6150, but was unable to break it. From there we had a directional change, pulling back to 0.6115 before US data was released. Better than expected US JOLTS job openings saw USD buying and we got to lows 0.6106 but rebounded from there, to close largely unchanged for the day at 0.6130.

• NZD/USD continues to be range bound, trading largely in a 0.6100/0.6150 range since Jan 16, the 20 and 50-day with EMAs holding steady in the 0.6150/60 range. The FOMC rate decision is out tonight, so expect little movement outside any major global news event.
• Australian Q4 CPI out at 1130 AEDT, so be mindful of spillover risks for NZD/USD.
• The AUD/NZD cross continues to track recent ranges struggling to hold above 1.0800, while earlier Jan lows rest just under 1.0700.
• Data out today: ANZ Activity Outlook & Business Confidence