BUND TECHS: (U5) Trend Outlook Remains Bullish

The BBDXY has had an Asian range of 1227.85 - 1229.76, Asia is currently trading around 1229. “China and the U.S. have agreed to establish a formal mechanism for economic and trade negotiations, with further details and a joint statement expected to be released on Monday, according to Xinhua News Agency. The high-level talks, held in Geneva over the weekend, were described as candid, in-depth, and constructive, with significant consensus reached and substantial progress made, Xinhua reported, citing China’s top trade negotiator, He Lifeng.” “Goldman expects the onshore yuan to strengthen to 7 per dollar in 12 months”(BBG). This is pretty significant considering only a month or 2 ago the thinking was USD/CNH would have to weaken considerably due to the tariffs. It also aligns with the broader view starting to gain traction that Usd/Asia could just be starting a bigger move lower.

• EUR/USD -  Asian range 1.1193 - 1.1243, Asia is currently trading 1.1230. EUR/USD gapped 50/60 points lower on the open to test below 1.1200 in early trade, price is now testing longer-term support around 1.1200, a sustained break below here would then target 1.1000. The market is still expected to use dips as a buying opportunity.
• GBP/USD - Asian range 1.3262 - 1.3295, Asia is currently dealing around 1.3285. GBP dipped on the Asian open but has since clawed back most of its losses. GPB has found buyers back towards 1.3200, if this support breaks buyers are expected to return back towards 1.3000/3100.
• USD/JPY -  Asian range 145.70 - 146.28, the Asia session is currently dealing around 145.85. The 146.00/1.4700 area remains the first area in which sellers should be eager to get involved, then the more important 149/151 area. Support seen back towards 1.4400.
• USD/CNH - Asian range 7.2198 - 7.2298, the USD/CNY fix printed 7.2066. Asia is currently dealing around 7.2250. Sellers capped the 7.2500 area on Friday, and would think any move back should again be met by supply. A move through this area targets 7.27/30.
• Cross asset : SPX +1.5%, Gold $3278, US 10-Year 4.40%, BBDXY 1229, Crude oil $61.37
• Data/Events : BOE’s Lombardelli, Greene, Mann and Taylor to speak.

Fig 1: USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg

NZGBs closed at session cheaps, with benchmark yields 3-4bps higher. NZ-US and NZ-AU 10-year yield differentials were little changed. 

• With the domestic calendar empty, attention was focused abroad.
• Cash US tsys are trading 2-3bps cheaper in today's Asia-Pac session as risk bounces on US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland. US Treasury Secretary Bessent said there had been 'substantial progress' in the two days of talks with China and that further details would be shared today.
• “The Reserve Bank of New Zealand (RBNZ) is "well-placed" to offset the impact of the projected lower discretionary fiscal spending on aggregate demand as the effect of the government's fiscal consolidation is likely to be limited at the macroeconomic level, ANZ Research said in a budget preview report on Monday.” (per MTN via BBG)
• Swap rates closed 3-4bps higher.
• RBNZ dated OIS pricing closed slightly firmer across meetings. 25ps of easing is priced for May, with a cumulative 75bps by November 2025.
• Tomorrow, the local calendar will be empty ahead of Card Spending and Net Migration data on Wednesday. 

RBA-dated OIS pricing is 2-24bps firmer across meetings than levels before the release of Q1 CPI data on April 30.

• Q1 headline and underlying inflation printed 0.1pp higher than expected, but the trimmed mean at 2.9% y/y was below the top of the RBA’s 2-3% target band for the first time since Q4 2021.
• The data was close to the RBA’s expectations and at this stage consistent with inflation sustainably remaining within the band. Thus, another 25bp rate cut to 3.85% is likely on May 20, assuming that easing is consistent with the RBA’s updated outlook.
• A 50bp rate cut in May is given a 2% probability (10% before the CPI data), with a cumulative 93bps (117bps before) of easing priced by year-end.

Figure 1: RBA-Dated OIS – Post-CPI Vs. Pre-CPI

Source: MNI - Market News / Bloomberg