BONDS: NZGBS: Bull-Steepener, Food Prices Highest Since Jan-24
NZGBs closed showing a bull-steepener, with benchmark yields 1-5bps lower. NZGBs outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 7-8bps tighter versus yesterday’s close.
- Cash US tsys are little changed in today's Asia-Pac session after yesterday's heavy session.
- Today’s NZGB auction showed strong demand, especially the 5-year supply, with cover ratios of 6.00x (May-30) to 3.42x (May-41) across the lines.
- Swap rates closed flat to 2bps lower, with implied swap spreads wider.
- NZ food prices rose 0.8% m/m to be up 3.7% y/y in April, the highest since January 2024, after 0.5% m/m and 3.5% y/y. The increase was driven by higher grocery and non-alcoholic beverage prices. Other categories were also released for April, including electricity for the first time, accounting for 46.5% of the CPI basket. Electricity and gas prices are now included in the monthly releases.
- While April prices were mixed, activity remains soft, and so another 25bp rate cut remains likely on May 28.
- RBNZ dated OIS pricing closed little changed across meetings. 25bps of easing is priced for May, with a cumulative 68bps by November 2025.
- Tomorrow, the local calendar will see BusinessNZ Manufacturing PMI, RBNZ Inflation Expectations and Non-Resident Bond Holdings.
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FOREX: FX Wrap - USD Move Lower Pauses
The BBDXY has had a tight Asian range of 1229.25 - 1232.89. The move lower is starting to show signs of at least slowing down. The USD has looked in real trouble as a rotation out of US assets seems to be gathering momentum and normal correlations with yield are breaking down.
- EUR/USD - Asian range 1.1316 - 1.1361, dipped initially on the Asian open but it has since bounced off its lows dealing around 1.1355 going into London. EUR/USD had been trading very closely with the 10 year rate differential, this relationship broke down completely last week. Traders are targeting a move back to 1.2000 in the Euro as the USD’s safe haven role is reassessed. See graph below.
- GBP/USD - Asian range 1.3164 - 1.3215, dealing right at the day's highs going into the London session. GBP has been playing catch up to the broad USD weakness.
- USD/CNH - Asian range 7.3074 - 7.3189, the USD/CNY fix was slightly lower at 7.2096. USD/CNH goes into the London open dealing around 7.3120.
- USD/JPY - Asian range 142.94 - 143.59, bounced from the open making its highs into the Japanese fix. It has since drifted lower for most of the session going into London back around 143.00. Huge support is eyed around 140, a break here could see the move really accelerate.
- Cross asset : SPX Futures -0.15%, Gold 3229.50, US 10yr 4.35%, BBDXY 1229, Crude oil 61.77.
- Data/Events : UK unemployment, FR CPI, ECB Lending Survey, Ger ZEW, Empire State Man survey.
Fig 1: EUR/USD Weekly Chart
Source: MNI - Market News/BBG
BUND TECHS: (M5) Trend Structure Remains Bullish
- RES 4: 133.00 round number resistance
- RES 3: 132.56 High Feb 28 and a key resistance
- RES 2: 132.03 High Apr 7 and the bull trigger
- RES 1: 131.57 Intraday high
- PRICE: 131.48 @ 05:35 BST Apr 15
- SUP 1: 129.73/128.60 20-day EMA / Low Apr 9
- SUP 2: 128.47 Low Mar 28
- SUP 3: 127.74 Low Mar 25 and a key short-term support
- SUP 4: 127.20 Low Mar 17
Bund futures are trading closer to their recent highs. A bull cycle remains in play and the latest pullback is considered corrective. A fresh short-term cycle high on Apr 7 reinforces a bullish theme. The contract has recently cleared 131.14, 76.4% of the Feb 28 - Mar 11 bear leg. This opens 132.56 next, the Feb 28 high. Initial firm support lies at 128.60, the Apr 9 low. A break below this level would alter the picture.
FOREX: Antipodean Wrap - AUD & NZD Make New Gains
The AUD and NZD have both traded bid once more making new highs in Asia. In its minutes The Reserve Bank of Australia expressed caution over future interest-rate cuts, saying May would be an "opportune time" to revisit policy settings. The board will have additional data on the labor market, inflation, household spending, and global trade policies by the May 19-20 meeting, which would have a considerable bearing on the decision.
- AUD/USD - Asian range 0.6316 - 0.6355, AUD has traded quietly bid for most of the Asian session, breaking the overnight highs and going into the London open at the top of its range. Shorts will be hoping for sellers to return but will be watching the 0.6400 area this week for signs of the next leg of position squaring.
- AUD/JPY - Asian range 90.38 - 91.01, AUD/JPY was bid from the open and has drifted higher for the majority of the Asian session. Price goes into the London open around 91.00 pressing its highs. AUD/JPY is trying to build a base as risk stabilises, but it remains to be seen if it can this last. Expect supply once more back towards the pivotal 94.00 area.
- NZDUSD - Asian range 0.5861 - 0.5915, NZD has traded bid the whole session and there is still very little pullback. NZD printing around 0.591/5/20 going into London, having made new highs in the session.
- AUD/NZD - Asian range 1.0734 - 1.0779, the cross drifted lower in the Asian session before finding some buyers towards the 1.0740 area. The cross is going into London pretty directionless but the bias appears to remain for the upside to be capped, as liquidity in the NZD dries up quicker than for the AUD on any move higher.
Fig 1: AUD/USD Daily Chart
Source: MNI - Market News/BBG
