ASIA FX: USD Weakness Continues, Led By EU Currencies

It was a heavy session for the local market, with the move driven by the positive signals from the Q4 NZIER Business Opinion Survey. It had a significant influence on the OIS market, which tempered expectations for RBNZ easing. 

• To sum up, the QSBO survey showed that a net 16% of businesses expect the economy to improve, vs 1% expecting it to get worse in Q3. This was the first positive outlook since Q2 2021. After seasonal adjustment, a net 9% of businesses expect the economy to improve, vs a revised 4% expecting deterioration in Q3.
• RBNZ dated OIS pricing closed 3-18bps firmer across meetings, with late 2025 leading.
• 45bps of easing is priced for February, with a cumulative 108bps by November 2025. The expected official rate for November has firmed 30bps since Friday’s close.

Figure 1: RBNZ Dated OIS Today vs. Yesterday (%)

Source: MNI – Market News / Bloomberg

ACGBs (YM +1.0 & XM +1.5) are slightly stronger on a data-light session. 

• Outside of the previously outlined Westpac consumer confidence, there hasn't been much by way of domestic drivers to flag.
• Cash US tsys are ~1bp richer in today’s Asia-Pac session after yesterday’s modest sell-off. US PPI data will be released later today, ahead of CPI data tomorrow.
• Cash ACGBs are 1-2bps richer with the AU-US 10-year yield differential at -15bps.
• Swap rates are 1-2bps lower.
• The bills strip is little changed.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut is fully priced for April (102%), with the probability of a February cut at 68% (based on an effective cash rate of 4.34%).
• Tomorrow, the local calendar is empty.
• AOFM Bond issuance will resume this week, with A$800mn of the 3.50% 21 December 2034 bond to be sold tomorrow and A$700mn of the 2.75% 21 November 2027 bond to be sold on Friday. 

The updated CFTC positioning data for FX markets, shows leveraged investor shifts in favor of the USD in the first week of January. The table below shows the weekly change and outright position for leveraged contracts and asset managers by currency. This is as at January 7th, so last Tuesday. 

• A big shift was against JPY, with near -11k shorts added by leveraged names. Outright shorts stand at -53.2k, but this is short of 2024 extremes, which extended beyond -100k.
• CAD shorts were also added to, with -94.6k outright shorts the most as measured by leveraged investors. This is close to recent cycle lows for leveraged shorts.
• The bias for asset managers was generally in favour of the USD, albeit in smaller magnitudes compared to the leveraged side. The exception was the AUD, where current shorts were cut. CAD shorts were also cut but by a much more modest amount compared to the AUD. 

Table 1: CFTC Positioning - By Currency & Investor Type 

Source: CFTC/Bloomberg/MNI - Market News