BONDS: NZGBS: Off Cheaps After Long Weekend Catch Up, RBA To Impact On Wednesday
NZGBs finished off cheapest levels on Tuesday, with the initial post-long weekend move reflecting the weakness observed in global core FI markets in lieu of Friday’s firmer than expected U.S. economic data, as well as reaction to the latest rounds of Fed, ECB & BoE speak. Still, core global FI found a bit of a base in the early rounds of wider Asia-Pac dealing, which allowed NZGBs to finish 14-17bp cheaper across the curve, with bear flattening in play. The local close came before the latest RBA decision across the Tasman, which pressured ACGBs, a move likely to be reflected in NZGBs come tomorrow’s local open (new flow & wide market-dependent).
- Swap rates were 16-17bp higher in a parallel shift, also finishing off session extremes, leaving swap spreads flat to wider on the day.
- RBNZ-dated OIS indicates ~55bp of tightening for this month’s decision, alongside a terminal OCR of ~5.25%, higher vs. Friday’s closing levels in lieu of the repricing of global central bank expectations witnessed in that window. Once again, these marks will likely be adjusted higher in reaction to the RBA decision during early Wednesday trade.
- There wasn’t much in the way of meaningful domestic headline flow to trade off, which left post-weekend adjustments at the fore.
- Looking ahead, there is nothing of note on the local docket on Wednesday.
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USDCAD TECHS: CAD Rips on Jobs Data
- RES 4: 1.3855 High Oct 21 - Nov 16 bear leg
- RES 3: 1.3808 High Nov 3 and a key resistance
- RES 2: 1.3751 High Nov 4
- RES 1: 1.3680/3705 High Jan 3 / Dec 16 and the bull trigger
- PRICE: 1.3470 @ 16:15 GMT Jan 6
- SUP 1: 1.3467 Low Jan 6
- SUP 2: 1.3385 Low Dec 5 and a key near-term support
- SUP 3: 1.3317/3226 Low Nov 24/25 / Low Nov 15 and bear trigger
- SUP 4: 1.3205 61.8% retracement of the Aug 11 - Oct 13 rally
USDCAD finished the week on a distinctly bearish note, with solid Canadian jobs data prompting a broad wave of CAD strength. This put prices below the week’s 1.3470 low and within range of key support at the 1.3385 level - the Dec 5 low. Further weakness will be needed, however, before the bullish trend condition fades and the bear trigger at 1.3226 can be considered. Last month's break of trendline resistance, drawn from the Oct 13 high, strengthened the bullish case and this has opened 1.3751, the Nov 4 high.
AUDUSD TECHS: Remains Above The 50-Day EMA
- RES 4: 0.6976 2.00 proj of the Oct 13 - 27 - Nov 3 price swing
- RES 3: 0.6956 High Aug 30
- RES 2: 0.6909 76.4% retracement of the Aug 11 - Oct 13 downleg
- RES 1: 0.6886/6893 High Jan 4 / High Dec 13 and the bull trigger
- PRICE: 0.6847 @ 16:12 GMT Jan 6
- SUP 1: 0.6699/29 50-day EMA / Low Dec 20 and key S/T support.
- SUP 2: 0.6585 Low Nov 21 and a key short-term support
- SUP 3: 0.6531 50.0% retracement of the Oct 13 - Dec 13 climb
- SUP 4: 0.6500 Round number support
AUDUSD finished the week close to the best levels, bouncing off support after a spell of weakness Tuesday. This keeps a bullish theme in place and the recovery Wednesday supports the view that moves lower should be considered corrective. Support at the 50-day EMA - at 0.6699 - remains intact for now. A clear break of this EMA is required to suggest scope for a deeper pullback and 0.6629, the Dec 20 low, is seen as a key short-term bear trigger. A resumption of gains would refocus attention on 0.6893, the Dec 13 high and bull trigger.
US TSYS: Yields Tumble With Average Earnings, ISM Services Misses
- Cash Tsys have swung from modest cheapening through 2-10Y tenors at the start of the US session to a substantial rally. The latter sees front end to belly yields currently down 21-22.5bps after notably weaker than expected average hourly earnings growth (offset somewhat by a new recent low for the u/e rate) before a significant miss for ISM Services as new orders cratered.
- US CPI on Jan 12 will most likely still be pivotal but for now, the market leans more heavily towards a 25bp hike from the FOMC on Feb 1 with 32bp priced vs 36-37bp prior to the data and the implied terminal cut 10bps to 4.95% for June (cumulative 62bps of hikes).
- Further along the curve, still significant rallies of 15bp for the 10Y (led by lower real yields, in turn pushing risk assets materially higher) have limited the steepening in 2s10s to just +5.5bps at -68bps, within yesterday's range. .
- TYH3 climbs to session highs of 114-09+ (+1-09) on very high volumes currently at 1.85M. It's easily through resistance at 113-15+ (Dec 23 high) to next eye 114-17 (76.4% retrace of Dec 13 – 30 bear leg).
- Looking to next week, Powell talking twice on Tue (Jan 10) at the Riksbank event will be firmly in focus, all with an eye on CPI on Thu (Jan 12).
