FOREX: USD Index Off Post Auto Tariff Highs, CAD & MXN Lag Though
Mar-27 04:52
The USD has been unable to sustain earlier gains. Post Trump headlines that he was imposing 25% tariffs on US auto imports the BDBXY index got to 1275.48. However, we have retraced since, last near 1271.95, off around 0.15% versus end NY levels from Wednesday.
- The initial reaction saw safe havens outperform, led by Yen. USD/JPY was last near 150.10/15, up around 0.30% in yen terms and near session lows. Cross asset trends have been less supportive of the yen as the session progressed, with US equity futures back in the green, while HK and China markets have also recovered. US yields are also up from earlier lows.
- Takehiko Nakao, Japan's former FX Chief stated the yen was too cheap on the sidelines of the Boao Forum (per BBG). This echoes comments from a senior lawmaker around yen being too cheap recently. This has likely helped yen sentiment at the margins.
- EUR/USD got close to its simple 200-day MA earlier (1.0727) but we sit higher at 1.0780/85 in latest dealings. This leaves EUR 0.25% higher.
- AUD/USD is firmer back to 0.6315, from earlier lows of 0.6279. NZD/USD got to 0.5712, but is now back in the 0.5740/45 region. Benefiting both currencies is the recovery in China and Hong Kong equities, the HSI up over 1%. Renewed tariff concerns may be driving flows into these markets, as the auto tariffs may be seen as inflationary in the near term for the US, whilst not benefiting growth just yet. Trump also stated in his earlier remarks that China may see tariff relief as part of a deal that sells TikTok.
- China Vice Premier Ding Xuexiang stated at the Boao forum China's economy had started 2025 well and that further policy support will be provided. The Vice Premier also stated China will continue to oppose protectionism and open up to offshore investment.
- USD/CAD is little changed, last near 1.4265, earlier highs were at 1.4317. USD/MXN is near 20.21, off around 0.50%, so both currencies have lagged the softer USD trends elsewhere.
- Later the Fed’s Barkin and Collins speak and final Q4 US GDP, February goods trade, inventories, March Kansas Fed manufacturing and jobless claims print. The ECB’s Lagarde, de Guindos, Villeroy, Schnabel and Buch appear and BoE’s Dhingra talks. The Norges Bank decision is announced.
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AUSSIE BONDS: Richer & At Session Highs Ahead Of CPI Monthly Tomorrow
Feb-25 04:43
ACGBs (YM +4.0 & XM +3.5) are stronger and at Sydney session highs.
- Today, the local calendar has been light.
- Australian consumer confidence strengthened last week to mark its highest level since May 2022 as households cheered the RBA's first rate cut since the pandemic, according to ANZ and Roy Morgan Research.
- Cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s gains.
- Cash ACGBs are 4bps richer with the AU-US 10-year yield differential at +2bps.
- Swap rates are 4bps lower.
- The bills strip has bull-flattened, with pricing flat to +5.
- Tomorrow, the local calendar will see January's CPI Monthly and Q4 Construction Work Done. The market expects Headline CPI to increase from 2.5% y/y to 2.6% y/y.
- The AOFM plans to sell A$800mn of the 3.75% 21 April 2037 bond tomorrow and A$700mn of the 1.75% 21 November 2032 bond on Friday.
CNH: Holding Near 100-day EMA Resistance, Vol & RR Levels Within Recent Ranges
Feb-25 03:52
USD/CNH remains sub 7.2600, but dips back towards 7.2500 have been supported so far today. Current levels are close to the 100-day EMA, which we have been sub since late last week. Earlier highs of 7.2630 couldn't be sustained.
- The weakness in onshore equities is likely not helping CNH, although the currency didn't follow the recent strong outperformance theme in local equities relative to the rest of the world.
- Some nervousness may be creeping into markets given some of the negative news flow around US/China trade/tariff related issues. We have heard the US pressing Mexico to impose tariffs on China imports, potential levies on China ships, investment curbs from China into key sectors like tech in the US, and a potential ramping up/tightening of semiconductors curbs that the Biden administration put in place (limiting chip exports from the US to China).
- These developments follow last week's remarks from US President Trump that a trade deal with China was possible.
- The USD/CNY fixing also edged to fresh highs since January.
- For USD/CNH sentiment in the implied vol space remains fairly benign though. 1 month implied vol levels hold close to recent lows, last near 4.52%. In the risk reversal space, the 1 month is up from recent lows sub -0.5000, but at -0.28 is still well off recent cycle highs.
BONDS: NZGBS: Closed Richer But Underperformed US Tsys
Feb-25 03:51
NZGBs closed at session bests, with benchmark yields 3-4bps lower.
- With the local calendar light, today’s strength appears tied to cash US tsys, which are 2-3bps richer in today’s Asia-Pac session after yesterday’s gains.
- Nevertheless, NZGBs have underperformed US tsys, with the NZ-US 10-year yield differential ~2bps wider versus yesterday’s close.
- Swap rates closed 3-4bps lower, with implied swap spreads little changed.
- RBNZ-dated OIS pricing is slightly firmer across meetings today, holding 1bp softer to 7bps firmer than last Wednesday’s pre-RBNZ policy decision levels. Currently, 26bps of easing is priced for April, with a total of 58bps expected by November 2025.
- Tomorrow, the local calendar will see NZ Treasury Chief Economic Adviser Dominick Stephens deliver a presentation on the State of the Economy.
- On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.
