FOREX: USD Index Falls, Yen Outperforms, A$ & NZD Lag
Apr-03 04:41
The BBDXY opened just above 1270 and has quickly fallen to its lows around 1263, where we currently hover going into the London open. We are off around 0.60%. Dollar highs came not long after reciprocal tariffs were announced, which were generally above market expectations. China's total tariff rate will 54%, while the EU's is at 20%, Japan 24%. Lower US yields, coupled with sharp equity future falls, has further dented the US exceptionalism theme and weighed on the USD as the session progressed.
- JPY and CHF are the strongest performers. USD/JPY is down to 147.25/30 in latest dealings, 1.3% stronger in yen terms. USD/CHF was last near 0.8755/60, up 0.70% in CHF terms. For USD/JPY, downside focus may rest with 146.54 level, the Mar 11 low and bear trigger.
- Cross asset sentiment trades very poorly, with US equity futures around 3% down, huge demand for treasuries (cash yields down 6-8bps), while gold is continuing to make new highs.
- EUR and EU bloc currencies have also recovered strongly from earlier lows, while GBP is also up firmly.
- EUR/USD - after rejecting the initial move towards 1.0925 and moving back to 1.0805 as the true extent of the tariffs were unveiled, the EUR has spent most of the Asian session climbing back to once more challenge the 1.0925 area. An end to US exceptionalism, with hopes of further EU equity outperformance post the tariff news, may be a factor for EUR's rebound today.
- GBP/USD - goes into the London open trading at its highs around 1.03070
- AUD/USD - has not been able to challenge the highs it saw initially and trades someway off from 0.6341 to go into the London session around 0.6275, similarly with the NZD around 0.5740. Both currencies are being more challenged by some of their biggest export destinations being hit hardest by the tariffs, such as China.
- USD/CNH - a huge spike to print close to 7.3500 on the Tariff news, it has spent most of Asia giving back some of this move, no doubt helped by some smoothing by officials. China has committed itself to a stable currency and USD/CNH will continue to be managed to reflect that. The previous highs around 7.3650/3700 will be keenly watched. We were last near 7.3100, around +0.20% firmer versus end NY levels from Wednesday.
- Looking ahead, we get final PMI reads for the EU and UK. In the US, the ISM services print, along with initial jobless claims will be in focus. Country/region responses to the US reciprocal tariff announcement will also be a watch point.
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AUSTRALIA DATA: Iron Ore Prices Help Drive Terms Of Trade Rise
Mar-04 04:19
The terms of trade rose 1.8% q/q seasonally adjusted in Q4, the first rise since Q4 2023, but is still down 4.8% on a year ago down from Q3’s -3.8%. It was driven by a 2.3% q/q rise in the goods terms of trade as export prices for iron ore and gold rose in the quarter. Thus it is not surprising that the 5.9% q/q rise in profits was driven by the mining sector.
- While the goods terms of trade is off its Q2 2022 peak, it remains elevated and above the pre-Covid period (see chart). Services have not recovered from the pandemic and were almost 15% below Q4 2019 in Q4 2024.
- Both goods and services export prices rose in Q4 up 2.7% q/q and 1.1% q/q respectively.
- Import prices were also higher rising 0.8% q/q driven by services (+1.9% q/q – third straight increase), while goods increased only 0.4% q/q after three consecutive declines.
Australia terms of trade
Source: MNI - Market News/ABS
AUSSIE BONDS: Richer But Off Bests, Q4 GDP Tomorrow
Mar-04 04:15
ACGBs (YM +6.0 & XM +5.0) are stronger but off session bests.
- The February meeting minutes clarified the discussion around the Board’s decision to cut rates 25bp. The Board determined though that the risk of holding rates “high for too long” outweighed that of having to remain restrictive for longer but that it didn’t pre-commit them to further easing.
- Cash US tsys are flat to 3bps richer in today’s Asia-Pac session.
- Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at +13bps.
- Swap rates are 5-6bps lower.
- The bills strip has bull-flattened, with pricing +1 to +6.
- RBA-dated OIS pricing is flat to 7bps softer across meetings today.
- Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 1bp firmer, while those beyond are 4-17bps softer. A cumulative 64 bps of easing priced by year-end.
- Tomorrow, the local calendar will see Q4 GDP data alongside S&P Global Composite & Services PMIs. RBA Deputy Governor Hauser will also deliver a keynote speech at the AFR Business Summit.
- This week, the AOFM plans to sell A$800mn of the 4.25% 21 March 2036 bond tomorrow and A$700mn of the 1.00% 21 December 2030 bond on Friday.
BONDS: NZGBS: Richer But Off Bests & Underperformed $-Bloc
Mar-04 03:58
NZGBs closed 3bps richer but in the middle of today’s ranges.
- Outside of the previously outlined building permits, there hasn't been much by way of domestic drivers to flag.
- Accordingly, today’s market swings have been more closely tied to movements in US tsys. Cash US tsys are flat to 3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s solid gains.
- Nevertheless, the NZGB 10-year underperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 6bps and 2bps wider respectively.
- Swap rates closed 3-4bps lower.
- RBNZ dated OIS pricing closed flat to 3bps softer today. Nevertheless, this still leaves pricing mixed versus pre-RBNZ policy decision levels on February 19. While pricing for the April meeting is 2bps firmer, meetings from May to November are 3-13bps softer. Currently, 26 bps of easing is priced for April, with a cumulative 77bps by November 2025.
- Tomorrow, the local calendar will see ANZ Commodity Price data.
- On Thursday, the NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond.
