JGBS: Twist-Steepener Ahead Of Tomorrow's 30Y Supply

The NZD/USD had a range today of 0.5770-0.5791 in the Asia-Pac session, going into the London open trading around 0.5785, +0.15%. The NZD/USD has drifted higher having a look back outward the 0.5800 area in our session. On the day, look for support now back toward the 0.5735-0.5755 area as the focus turns back to the more important 0.5800-50 resistance where I suspect sellers could return initially. The FOMC this week will have important implications for the USD so the market will be gearing up for that event.

• MNI - This week is dominated by the FOMC decision, widely expected to deliver a third consecutive 25bp cut after NY Fed Williams' uncharacteristic guidance following the delayed September payrolls report. It's likely to be a contentious meeting, though, with many FOMC members preferring to pause.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5670(NZD382m), 0.5730(NZD767m). Upcoming Close Strikes : 0.5700(NZD557m Dec 10) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 34 Points

Fig 1: NZD/USD Spot Daily Chart

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

ACGBs (YM -2.5 & XM -2.0) remain weaker after dealing in relatively narrow ranges in today’s session. 

• Cash US tsys are slightly richer in today's Asia-Pac session after Friday's modest sell-off.
• Cash ACGBs are 2-3bps cheaper with the AU-US 10-year yield differential at +57bps.
• Today’s Jun-54 auction delivered the weighted average yield 0.81bps through prevailing mids. Moreover, demand strengthened, as reflected by a cover ratio of 3.4333x, up from 2.8500x from the previous auction. The stronger demand came with the outright yield at a fresh cycle high, 20bps higher than the previous auction (see chart).
• The bills strip has bear-flattened across contracts.
• Tomorrow, the local calendar will see NAB Business Confidence ahead of the RBA Policy Decision. Thursday’s November jobs data will also be important this week.
• The RBA is unanimously expected to leave rates at 3.6% with the market pricing in no chance of a move in either direction. Therefore, the statement will be scrutinised to gauge the Board’s thinking regarding the outlook and especially if there is a change to the balance of risks and a shift to concern about upside ones to inflation after the October trimmed mean printed at 3.3%.
• The AOFM plans to sell A$1000mn of the 1.00% 21 December 2030 bond on Wednesday. 

 Bloomberg Finance LP

The USD/JPY range today has been 154.90 - 155.38 in the Asia-Pac session, it is currently trading around 155.10, -0.15%. The pair has traded a little lower in a quiet start to the week. The market is pricing in the fact that the Yen move looks likely to force the BOJ into action in December. This has stalled the upward momentum and could keep it contained in the short-term but I suspect the market will still look for opportunities to express a long USD at the right levels. Technically USD/JPY is still in an uptrend with the first big support back toward the 153-155 area which should see buyers reemerge. In today's Asian session I suspect we will continue to consolidate within a wider 154.50-156.00 range. The FOMC later this week could be the catalyst to get this pair moving again as it could potentially be meaningful for the USD direction going into the year-end.

• MNI BRIEF: Japan's Q3 GDP Revised Down on Capex. Japan's Q3 GDP fell 0.6% q/q, or an annualised -2.3%, compared with the initial estimate of -0.4% q/q, or -1.8% annualised, as capital investment and public spending were revised down, although private consumption private consumption, which accounts for about 60% of Japan’s GDP, was revised up to 0.2% from 0.1%, though its contribution remained unchanged at 0.1 pp.
• Bloomberg - “Goldman strategists believe one BOJ rate hike won’t sustainably end yen underperformance. Investors are holding fast to the bearish wagers on the currency.”
• Options : Close significant option expiries for NY cut, based on DTCC data: 155.00($1.33b), 156.00($1.49b). Upcoming Close Strikes : 155.00($877m Dec 11), 156.00($880m Dec 10), 156.00($1.24b Dec 11) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 93 Points

Fig 1 : USD/JPY Spot Daily Chart

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