AUSSIE BONDS: Sharply Cheaper, RBA Hawkish Again On Inflation
ACGBs sit sharply lower (YM -23.0 & XM -13.5) after the RBA surprises the market by lifting the cash rate by 25bp to 3.85% from 3.60%, labelling inflation as still “too high”. RBA dated OIS pricing had only a 14% chance of a 25bp rate hike priced ahead of the decision. At the time of writing, 3-year and 10-year futures were as much as 22bp and 14bp lower respectively after the RBA decision.
- The RBA began the year with a hawkish stance on inflation but softened its stance after monthly CPI data indicated that inflation had peaked. However, the RBA has once again adopted a hawkish stance with the decision statement, stating that “Some further tightening of monetary policy may be required to ensure that inflation returns to target...”.
- RBA dated OIS has shunted 22-32bp higher across meetings with terminal rate expectations lifting to just shy of 4.0% at 3.98%.
- Cash ACGBs are 12-20bp higher after the decision with the AU-US 10-year yield differential +11bp at -7bp.
- Swap rates are 13-22bp higher after the decision with the 3s10s curve 9bp flatter.
- The bills strip bear flattens with pricing -34 to -19 after the decision.
- Elsewhere, more information is trickling out regarding the May 9 budget. The government is focused on providing cost-of-living relief while not providing fiscal stimulus that adds to inflation – The Australian.
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MNI: US BANKS DEPOSITS DECLINE $126B WEEK ENDING MARCH 22
- MNI: US BANKS DEPOSITS DECLINE $126B WEEK ENDING MARCH 22
- FED DATA: SMALL BANKS' DEPOSITS UP $6B IN WEEK TO $5.39T
- FED DATA: LARGE BANKS' DEPOSITS DOWN $90B IN WEEK TO $10.65T
USDCAD TECHS: Heading South
- RES 4: 1.3898 High Oct 14
- RES 3: 1.3805/3862 High Mar 24 / 10 and the bull trigger
- RES 2: 1.3745 High Mar 27
- RES 1: 1.3593/3649 50- and 20-day EMA values
- PRICE: 1.3540 @ 08:04 BST Mar 31
- SUP 1: 1.3517/15 100-dma / Low Feb 22
- SUP 2: 1.3491 61.8% retracement of the Feb 2 - Mar 10 rally
- SUP 3: 1.3442 Low Feb 20 / 21
- SUP 4: 1.3404 76.4% retracement of the Feb 2 - Mar 10 rally
The current bear cycle in USDCAD remains in play and the pair continues to weaken. This week’s bearish extension has resulted in a break of the 50-day EMA and 1.3562, the 50% retracement for the Feb 2 - Mar 10 rally. The move lower signals scope for a continuation towards 1.3491, the 61.8% retracement. On the upside, initial firm resistance is seen at 1.3649, the 20-day EMA.
US TSYS: Tsys Near Wk Highs Into Month/Quarter End
- Treasury futures are pushing late session highs, volumes climbing into the month/quarter end, front month 10Y futures traded over 300k from 114-28 to 115-01 high (+14.5), 10Y yield down to 3.4752% low.
- Little market reaction to NY Fed Williams' economic outlook speech to the Housatonic Community College in Connecticut. "I expect inflation to decline to around 3-1/4 percent this year, before moving closer to our longer-run goal in the next two years," he added, slightly increasing his forecast a quarter point since mid-February.
- Fed speakers still scheduled for this evening: Fed Gov Cook, eco outlook/mon-pol, Midwest Economics Assn at 1745ET; Fed Gov Waller re: Phillips curve, text, no Q&A at 2200ET.
- Yield curves flat to mildly steeper (2s10s -57.487 +.205), well off session lows as Jun'23 2Y futures making new late session highs (TUM3 103-08, +3.0), 2Y yield marks session low of 4.0459%.
- Implied May Fed hike pricing fell from 16bp to 13.5bp after that soft Feb PCE report, but it's since bounced back to 14.4bp. The soft services ex-housing number is key to any Fed pause narrative but as we noted earlier, the April 28 PCE release will carry far more weight for FOMC Fed going into the May 3 decision. Let alone the rest of the year, for which 55bp of cuts from peak are priced (basically unchanged from pre-data).
