BONDS: NZGBS: Richer After US Tsys Finished Last Week On A Firmer Foot
In local morning trade, NZGBs are 1-2bps richer, thanks to a relief rally in US tsys that capped off a busy week. However, the rally came after the 10-year yield pushed slightly above 4.5%, marking a fresh 16-year high. By the end of the week, the 10-year US tsy yield had eased to 4.43%, down by 6bps. This strengthening occurred despite the "higher for longer" communication from Fedspeak, which reinforced the Fed's "hawkish hold" stance earlier in the week.
- Federal Bowman called for "further rate hikes" to bring inflation back to target. At the same time, Fed Collins said Friday that further tightening is not off the table and emphasized that she expects rates to stay higher for longer. Meanwhile, Fed Daly said it's "unlikely inflation will reach 2% goal in 2024.
- Swap rates are 4bps lower.
- RBNZ dated OIS pricing is flat to 1bps softer across meetings, with terminal OCR expectations at 5.76%.
- (ABC) New Zealand's housing density experiment saw approvals for new builds in Auckland 'skyrocket' while house prices kept climbing. The test case went so well, that NZ's national government adopted a version of it for the whole country. (See link)
- This week the local calendar is empty until ANZ Business Confidence on Thursday.
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USDCAD TECHS: Trading At The Week’s Highs
- RES 4: 1.3805 High Mar 24
- RES 3: 1.3732 Trendline resistance drawn from the Oct 13 2022 high
- RES 2: 1.3655 High May 26 and a key resistance
- RES 1: 1.3640 High Aug 25
- PRICE: 1.3628 @ 16:51 BST Aug 25
- SUP 1: 1.3496 Low Aug 21
- SUP 2: 1.3451 20-day EMA
- SUP 3: 1.3381 50-day EMA
- SUP 4: 1.3266 Low Aug 2
USDCAD is trading at this week’s highs. The fresh cycle high on Wednesday reinforces the uptrend and maintains the price sequence of higher highs and higher lows. A clear break of 1.3600 would expose 1.3655, May 26 high. Note that a trendline resistance, drawn from the Oct 13 2022 high, is at 1.3732 and represents an objective further out. Support to watch is 1.3451, the 20-day EMA.
US TSYS: Tsys Off Lows, Chair Powell Tone Balanced At Jackson Hole
- US rates are holding mildly weaker after the bell, near the middle of the session range after early event driven volatility. Treasury futures initially trade weaker/extend lows in reaction to Fed Chairman Powell's keynote speech from Jackson Hole economic summit, and just as quickly reversed course.
- Stocks are trading firmer in late trade, headed back near early session highs as Fed Chairman Powell's speech from Jackson Hole deemed more balanced, or at the least: not as hawkish as it could have been.
- “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” Powell said in his widely awaited Jackson Hole speech. “There is substantial further ground to cover to get back to price stability.”
- Powell said he’s pleased to see inflation coming down but is not yet fully convinced that price pressures are on a sustainable path downward to the Fed’s 2% target, particularly because inflation excluding food and energy prices remains more than twice that level.
- Front month 10Y futures marked 109-03.5 low (-15.5) are currently trading 109-13.5 after tapping 109-23 briefly this morning. Heavy futures volume by the close (TYU3>3.6M) due to a surge in quarterly futures rolls from Sep to Dec ahead next Thursday's First Notice. Sep'23 Treasury options expiration also added to heavy volumes.
- Slow start to the week ahead -- culminates with the latest employment data for August next Friday.
AUDUSD TECHS: Bears Remain In The Driver’s Seat
- RES 4: 0.6723 High Aug 1
- RES 3: 0.6597 50-day EMA
- RES 2: 0.6509 20-day EMA
- RES 1: 0.6488 High Aug 24
- PRICE: 0.6406 @ 16:50 BST Aug 25
- SUP 1: 0.6365 Low Aug 17 and the bear trigger
- SUP 2: 0.6285 Low Nov 4 2022
- SUP 3: 0.6272 Low Nov 3 2022 and a key support
- SUP 4: 0.6215 2.236 proj of the Jun 16 - Jun 29 - Jul 13 price swing
The AUDUSD trend remains bearish and the latest recovery appears to be a correction - Thursday’s sell-off reinforces this theme. Firm resistance is at the 20-day EMA at 0.6509. The 50-day EMA is at 0.6597. The pair has recently breached support at 0.6458, May 31 low and a bear trigger. This strengthens the downtrend and opens 0.6285 next, the Nov 4 2022 low. On the upside, clearance of the 20-day EMA would suggest scope for a stronger correction.
