AUSSIE BONDS: Slightly Stronger As Early Losses Reversed

The AUD/USD has had a range today of 0.7067 - 0.7128 in the Asia- Pac session, it is currently trading around 0.7125. The AUD took another leg up across the board as the market reacted to Hauser saying they “will do what's necessary to return inflation to target”. The USD is again back under pressure and the move lower in yields overnight is just adding to its headwinds, the AUD remains a favourite vehicle to express a long against it. The AUD has been outperforming across the board as leveraged funds continue to add to their longs as further hikes are potentially priced in. On the day, the first support is back toward the 0.7040–0.7070 area, and then the 0.6950 area. The bulls will be looking for dips to remain supported in order to break above the pivotal 0.7100-0.7200 area. A sustained break above here targets 0.7600-0.7800 first and then 0.8000-0.8200.

• "HAUSER: WILL DO WHAT'S NECESSARY TO RETURN INFLATION TO TARGET" - BBG
• MNI BRIEF: Stronger Demand Drove Hike - RBA's Hauser. The RBA’s 25bp February hike to 3.85% reflected stronger global growth, looser financial conditions and firmer private demand relative to supply. The reason policy turned around in February is because the facts changed,” he said, referring to last week’s decision.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.7010(AUD560m). Upcoming Close Strikes : 0.6800(AUD1.55b Feb 13), 0.6850(AUD933m Feb 12) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 80 Points

Fig 1: AUD/USD spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P

NZGBs closed showing a bull-flattener, with benchmark yields 2-4bps lower. 

• Nevertheless, NZGBs underperformed ACGBs with the NZ-AU 10-year yield differential 2bp wider on the day.
• There has no cash US tsys dealings in today’s Asia-Pac session, with Japan out on holiday.
• (Bloomberg) “New Zealand’s government has started an independent review of New Zealand’s monetary policy response to the Covid-19 pandemic. Purpose of the review is to identify lessons New Zealand could learn to improve the monetary policy response to future major events.”
• Swap rates closed 2-5bps lower, with the 2s10s curve flatter. At 1.06, the curve is at its flattest since late November (see chart).
• RBNZ-dated OIS pricing closed little changed across meetings. No tightening is priced for February, while December 2026 assigns 43bps.
• The local calendar will be light until Friday's release of BusinessNZ Manufacturing PMI, Net Migration and RBNZ Inflation Expectation data.
• Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 1.50% May-31 bond and NZ$200mn of the 4.5% May-35 bond.

Bloomberg Finance LP

In the FX option space, JPY volumes have dominated so far in Wednesday trade, with around $3.1bn in total volumes so far. This is 46.6% of total volumes, per DTCC via BBG and comes despite onshore markets in Japan being out today. Next on the volumes list is USD/TWD with 10.8% of total volumes. AUD/USD, which has broken above 0.7100 for the first time since 2023 just under $600mn in FX options volumes so far today (around 9.5% of total).

• For USD/JPY, the larger volume transactions ($100mn or more), are mostly for puts, with a variety of strike levels. A 143 strike, expiry end April this year was executed for +200mn per DTCC. This comes as USD/JPY continues to unwinds its pre-election bounce, amid signs that government wants to earn the markets trust around fiscal policy etc. Softer US yields are also weighing on USD/JPY.
• USD/JPY risk reversals are rolling back over, but are above late Jan lows. The 1 month is around -1.64.
• In the vol space, overnight vol is elevated near 16.45%, which reflects the upcoming US payrolls print later. Other implied vol measures are sub 10%.