GBPUSD TECHS: Trend Direction Remains Down

ACGBs sit slightly weaker (YM -1.0 & XM -1.0) after early gains inspired by US tsys strength ahead of the weekend are more than reversed over the Sydney session. With little meaningful macro news flow, the local market has traded with US tsys, which have cheapened in Asia-Pac trade, ahead of tomorrow’s RBA policy decision.

• The RBA is expected to remain on hold at its policy decision meeting tomorrow, taking advantage of the Q1 core CPI undershoot to assess the impact of the 350bp of tightening that has been delivered.
• RBA dated OIS is currently attaching a 12% chance of a 25bp hike versus 36% ahead of Q1 CPI data. Terminal rate expectations, which have centred on the August meeting, have also been scaled back with current pricing at 3.70%, 13bp of cumulative tightening.
• Cash ACGBs are flat to 1bp cheaper with the AU/US 10-year yield differential +3bp at -11bp.
• Swap rates are 1-2bp higher with EFPs slightly wider.
• Bills strip pricing is -2 to +1 with mid-reds the strongest.
• RBA Governor Lowe is scheduled to deliver a speech (1220 BST) after tomorrow’s decision.
• Until the RBA Decision, the local market will be watching US tsys through the release of US ISM Manufacturing PMI later today.

NZGBs closed stronger but off session bests, particularly for the short end. 2/10 NZGB cash curve steepened 6bp on the day with 2-year and 10-year benchmark yields respectively flat and 6bp lower. The 2-year yield was down as much as 8bp early. Without a domestic catalyst, NZGBs moved away from bests as US tsys cheapened in Asia-Pac trade.

• 2s10s swap curve twist flattens with rates 1bp higher to 3bp lower and implied long-end swap spreads wider.
• RBNZ dated OIS closed flat to 3bp firmer across meetings. May meeting pricing remained at 22bp of tightening.
• The Antipodean calendar sees the RBA Policy Decision tomorrow, with no change expected, ahead of the release of the Q1 Labour Market Report on Wednesday. BBG consensus expects some cooling in tight labour market conditions. Q1 wage growth is however expected to remain at Q4’s strong pace.
• Ahead of the release of the 2023 Financial Stability Report (Wed), the RBNZ noted in an article that NZ lending is generally at variable or short-term fixed rates, which means the potential losses for banks from interest rate movements are smaller.
• Ahead of the RBA decision, the local market will be guided by US tsys through the release of US ISM Manufacturing PMI later today.

TYM3 deals at 115-07+, +0-01, a touch off the base of the 0-07 range on volume of ~58k.

• Cash tsys sit 2-4bps cheaper across the major benchmarks, the curve bear flattened.
• Tsys were pressured in early dealing as local participants digested weaker-than-expected Chinese PMI data published yesterday as well as Fridays US data.
• An expected deal for First Republic did not eventuate as Reuters reported that regulators have had to ask for bids to be revised although a decision is said to be getting closer.
• Ranges were narrow with little follow through on moves for the remainder of the session.
• FOMC data OIS price a ~22bp hike for this weeks FOMC meeting which headlines the week's calendar, with a terminal rate of ~5.10% in June. There are ~60bps of cuts priced for 2023.
• There is a thin docket in Europe today with the UK and several European countries closed for the observance of national holidays. Further out we have the latest ISM Survey which headlines an otherwise thin calendar.