HKD: Spot's Bottom Peg Band Test Proves Fleeting
The spot recovery in USD/HKD has continued, with the pair now back above 7.7700 in recent dealings. This puts us back close to the 100-day MA (near 7.7715), and we are already above the 20 and 50-day EMA resistance points. Broader USD sentiment has stabilized somewhat post the FOMC, while US-HK rate differentials have surged back in favor of the dollar.
- This leaves the recent trip to the bottom end of the band at 7.7500 as fleeting. The surge in 12 month US-HK rate differentials has been very dramatic. From end April where we were around -20bps, we last tracked +64bps. This is fresh cycle highs in this spread, see the chart below. The 3 month spread is at +154bps.
- This has all been driven by the sharp decline in Hibor yields as HKMA intervention boosts system liquidity.
- Possible HKD supports (fresh equity inflows)/tighter liquidity trends (from dividend outflows) aren't enough of an offset at this stage.
Fig 1: USD/HKD Versus US-HK 12month Yield Differential
Source: MNI - Market News/Bloomberg
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BONDS: NZGBS: Closed Cheaper But Mid-Range Ahead Of RBNZ Decision Tomorrow
NZGBs closed showing a dramatic bear-steepener, with benchmark yields 6-17bps higher. Nevertheless, yields closed well off session highs, particularly at the short end, This move aligned with richening in today's Asia-Pac session. NZGBs 16-20bps cheapening earlier in the session.
- On a relative basis, NZGBs underperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 3bps and 7bps wider.
- Swap rates closed finished 4-11bps higher, with the 2s01 s curve steeper.
- Tomorrow, the local calendar will see the RBNZ Policy Decision, with consensus unanimous in expecting a 25bp cut to 3.50%.
- RBNZ dated OIS pricing closed 1-5bps firmer across meetings, with Feb-26 leading. 27bps of easing is priced for tomorrow, with a cumulative 98bps by November 2025.
- Christian Hawkesby will be the head of RBNZ for an initial six-month period while a permanent governor is sought. The Reserve Bank board has started the recruitment process to find a permanent governor who will serve for five years, with Hawkesby and Assistant Governor Karen Silk considered likely candidates. (per BBG)
- On Thursday, the NZ Treasury plans to sell NZ$275mn of the 0.25% May-28 bond and NZ$225mn of the 4.25% May-34 bond.
BUND TECHS: (M5) Corrective Pullback
- RES 4: 132.80 High Feb 5
- RES 3: 132.56 High Feb 28 and a key resistance
- RES 2: 132.03 High Apr 7 and the bull trigger
- RES 1: 130.57 50.0% retracement of Monday’s high-low range
- PRICE: 130.03 @ 05:30 BST Apr 8
- SUP 1: 129.83 50-day EMA
- SUP 2: 129.15/128.47 20-day EMA / Low Mar 28
- SUP 3: 127.74 Low Mar 25 and a key short-term support
- SUP 4: 127.20 Low Mar 17
Bund futures trading in a volatile manner Monday. For now, a bull cycle remains in play and a pullback is considered corrective. A fresh short-term cycle high yesterday signals scope for a continuation of the uptrend. The contract has cleared 131.14, 76.4% of the Feb 28 - Mar 11 bear leg. This strengthens the bullish condition and opens 132.56, the Feb 28 high. Initial firm support to watch lies at 129.15, the 20-day EMA.
CHINA: Bond Futures Retrace
- After three days of significant rally, China's bond futures are lower today.
- China's 10Yr bond future is lower by -0.27 at 108.913, having risen +0.605 yesterday.
- The recent rally has seen the 10YR break above all major moving averages, the nearest being the 50-day EMA of 108.13.
- China's 2YR bond future is lower by -0.05 at 102.60, touching the 100-day EMA of 102.6073 with the next key technical level the 200-day EMA of 102.58.
- Cash bonds are off too with the CGB 10YR at 1.66%, +2.5bps higher today.
