AUSSIE BONDS: Richer, US Tsys Rally After Soft ADP & ISM Services

In local morning trade, NZGBs are 2-3bps cheaper across benchmarks after another heavy session for US tsys. US tsys did, however, finish off session cheaps as rates reacted to a reversal in US equities.

• Generally quiet session on lighter volumes (TYM5 <1M) with multiple spring holidays around the globe: Japan, China, HK, South Korea, and the UK. The EU was open, however.
• Focus remains on Wednesday's FOMC rate announcement at 1400ET. The FOMC is expected to extend its series of rate holds to a third meeting in May, keeping the Fed funds target rate at 4.25-4.50% while maintaining its forward guidance in the Statement.
• US yields gapped higher after higher-than-expected ISM Services data, climbing to the highest levels since January 2023.
• Swap rates are flat to 2bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing is little changed across meetings. 26bps of easing is priced for May, with a cumulative 76bps by November 2025.
• Today, the local calendar will see ANZ Commodity Price data.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$175mn of the 4.25% May-36 bond and NZ$50mn of the 2.75% May-51 bond.

The overnight range was 143.54 - 144.43, Asia is currently trading around 143.75. 

• Bloomberg - Taiwan’s central bank sought to tamp down speculation on foreign exchange markets, saying market chatter is partially responsible for the local currency’s two straight days of wild appreciation not seen since the 1980s. Given the move in USD/TWD the market will be fixated on potential trade deal headlines this week.
• The FOMC on Wednesday will be watched closely, MNI Economist - “The FOMC will extend its series of rate holds to a third meeting in May, keeping the Fed funds target rate at 4.25-4.50% while maintaining its forward guidance in the Statement. As the FOMC awaits clarity in both government policy and the data on the degree to which one if not both dual mandate targets will be missed, most participants will continue to support a holding pattern until there is a clearer signal to act. Don’t anticipate any meaningful changes in the Statement, though any signal that the Fed is looking seriously at “soft” survey data to assess the outlook could be significant.”
• USD/JPY the 145.50/1.4700 area proved to be tough to get through initially. The JPY has benefited from the capitulation in a host of USD/Asia trades, led by USD/TWD.
• Look for some support initially back towards 143.00, but we would probably need another catalyst to test below that again. Which probably makes a range of 143-147 for the week likely.
• CFTC data shows Asset managers continuing to add to already significant JPY longs, leveraged funds seems to have pared their shorts back a little.
• Data : US FOMC on Wednesday

Fig 1 : USD/JPY Spot Hourly Chart

Source: MNI - Market News/Bloomberg

• RES 3: 147.74 - High Jan 15 and bull trigger (cont)
• RES 2: 146.53 - High Aug 6 
• RES 1: 142.95 - High Apr 7
• PRICE: 141.04 @ 16:20 GMT May 5
• SUP 1: 139.38 - 1.0% 10-dma envelope
• SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg   
• SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg

JGBs are holding the bulk of the recent strong bullish reversal from early April, rejecting any test of fresh cycle lows for the M5 contract. This defies the bearish momentum studies drawn on the longer-term chart, clearing moving-average resistance to print 142.40 at the new upper level. To the downside, sights are on 136.57, a Fibonacci projection. 144.48 is the medium-term target on any recovery.