FOREX: USD Ticks Up Amid Muted Session As Markets Await US NFP Later
Forex trends in the G10 space have been muted, albeit with a slightly positive USD bias, as markets await the US NFP print later. Aggregate moves are not much beyond 0.10% at this stage. The USD BBDXY index sits up a touch from end Thursday levels, last near 1313.8.
- USD/JPY has traded a little over 30pip range. Dips under 158.00 have been supported and we last tracked near 158.30/35, around session highs. Recent highs in the pair just above 158.50 remain intact. Earlier data showed better than expected real household spending figures, but we are still negative from a y/y standpoint. This is unlikely to unnerve the BoJ around any urgent need to raise policy rates.
- AUD/USD is holding under 0.6200, but has maintained tight ranges so far today. We also had Australian household spending figures, which like yesterday's retail outcome, came in slightly below market expectations. NZD/USD is under 0.5600 as well, but up from recent lows (0.5572).
- Earlier US equity futures opened lower, but we are away from worst levels. Eminis and Nasdaq futures were last off around 0.30%. Rising cost estimates from the LA fires was a likely early headwind in this space. US yields are down a touch, but losses are less than 1bps.
- EUR/USD was last near 1.0300, while GBP/USD is close to 1.2300, both pairs little changed for the session. GBP is off around 1% over the past week, the weakest G10 performer amid fresh twin deficit concerns.
- Looking ahead, outside of the US NFP print we also have the Canadian jobs report.
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BONDS: NZ-US 10Y Differential Back At Lowest Since Mid-2021
NZGBs closed showing a bull-steepener, with benchmark yields flat to 3bps lower. The NZGB 10-year has outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 5bps tighter on the day.
- At +9bps, the NZ-US 10-year differential is around its lowest since mid-2021.
- A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +7bps.
- Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship.
- The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
Figure 1: NZ-US 10-Year Yield Differential
Source: MNI – Market News / Bloomberg
FOREX: Limited FX Moves Ahead Of US CPI Data Later
Ahead of November US CPI out later today, there have only been restrained moves in G10 currencies. The BBDXY USD index is off its intraday low but still down 0.1%. The yen has made the largest move with USDJPY down 0.3% to 151.56 but off the intraday low of 151.42. Japanese corporate goods price inflation picked up but imported pressures fell.
- AUDUSD fell to 0.6369 in early trading continuing Tuesday’s sell off but it is now up 0.1% to 0.6384, after reaching 0.6389. RBA Deputy Governor Hauser speaks at 1800 AEDT at the ABE annual dinner. AUDJPY is 0.2% lower at 96.75 after falling to 96.62.
- NZDUSD is 0.1% higher at 0.5803 after falling to 0.5797 earlier. AUDNZD has been hovering around 1.10 for much of the session to be higher than before Tuesday’s RBA announcement.
- European currencies are little changed with ECB and SNB meetings on Thursday. EURUSD is around 1.0529, EURCHF 0.9301 and EURGBP 0.8243.
- APAC equities are mixed with the Hang Seng down 0.2%, CSI 300 flat and S&P e-mini up 0.1% and KOSPI +0.6%. Oil prices are higher with WTI +0.6% to $69.00/bbl. Copper is up 0.9% and iron ore is $105-106/t.
- November US CPI data is out later, which is expected to show headline ticking up to 2.7% y/y but core steady at 3.3% y/y. The Fed is currently forecast to cut rates 25bp on December 18. US November real earnings and federal budget balance are also out and the Bank of Canada decision is announced.
BONDS: NZGBS: Strong Outright & Relative Performance
NZGBs closed showing a bull-steepener, with benchmark yields flat to 3bps lower. The NZGB 10-year has outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 5bps tighter on the day. At +9bps, the NZ-US 10-year differential is around its lowest since mid-2021.
- The market appears to have benefitted from a positive spillover effect from ACGBs, following yesterday’s strong rally in the wake of the RBA decision. The local market was closed at the time of the announcement, amplifying the delayed impact.
- That said, today’s data was on the weak side. NZ manufacturing volumes fell 1.2% q/q in Q3 versus a revised +0.3% in Q2.
- Interestingly, Westpac’s forecasting model suggests that the NZ economy appears to be emerging from recession in Q4, with GDP seen to be increasing 0.2%. (per BBG)
- Swap rates closed 1-3bps lower, with the 2s10s curve steeper.
- RBNZ dated OIS pricing closed flat to 4bps softer. A cumulative 44bps of easing is priced by February, with 111bps by year-end 2025.
- Tomorrow, the local calendar will see Card Spending data ahead of BusinessNZ Manufacturing PMI and Net Migration on Friday.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$225mn of the 4.50% May-35 bond and NZ$25mn of the 2.75% Apr-37 bond.
