CNH: USD/CNH Back Above 7.2500, But CNY Basket Firms
USD/CNH tracks above 7.2500 in early Friday dealings, with the currency losing 0.29% against the dollar in Thursday trade. This was consistent with broader USD index gains, as the dollar recouped post FOMC losses in Thursday trade. USD/CNY spot finished up at 7.2493, while the CNY CFETS basket tracker rose 0.16% to 98.58 (per BBG). This was firmest daily gain for the index since the start of March, but fits with the pattern of the yuan outperforming during firmer USD sessions.
- For USD/CNH technicals, we are back around both the 20 and 100-day EMA levels. Further north is the 50-day EMA resistance point close to 7.2650. On the downside, focus likely rests with the simple 200-day MA, last close to 7.2210.
- Outside of broader USD gains on Thursday, loss of upside impetus for China related equities is likely trimming yuan appetite at the margins. To recap, the CSI 300 lost 0.88% yesterday (closing at 3975), while Hong Kong's HSI fell 2.23%. In US trade on Thursday, the Golden Dragon index fell 3.84%, down for the third straight session.
- Stabilizing after the recent surge higher in these equity bourses is arguably not surprising, while markets also wait to see how growth momentum unfolds through the latter stages of Q1/into early Q2. Industrial profits print next Thursday, then on 31st of March (a Monday), the official March PMIs are due.
- This Saturday, US Senator Steve Daines is expected to meet with senior China leaders, with focus likely to be on any progress around lower trade tensions (see this BBG link). This also comes as key global business executives are in China this weekend.
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AUSSIE 3-YEAR TECHS: (H5) Monitoring Resistance
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.310/360 High Feb 7 / High Dec 11
- PRICE: 96.090 @ 15:59 GMT Feb 18
- SUP 1: 95.900 - Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
A medium-term bear cycle in Aussie 3-yr futures remains intact, with Wednesday weakness confirming short-term gains as corrective. On the upside, an extension higher would signal scope for 96.360, the Dec 11 high. Clearance of this level would open 96.730, the Sep 17 ‘24 high. On the downside, a reversal lower from current levels would signal a resumption of the downtrend. A deeper sell-off would refocus attention on 95.760, the 14 Nov ‘24 low.
LNG: Gas Remains In High Demand, European Prices Rebound
European natural gas rose sharply on Tuesday unwinding some of the sell-off driven by hopes of a ceasefire in the Ukraine and easier sanctions on Russian fossil fuels. It is up 3.7% to EUR 49.90, close to the intraday high, but is still down 6.3% this month. Negotiations have just begun between Russia and the US for a peace in Ukraine but with fighting unabated there is a long way to go before there’s a truce let alone the easing of sanctions.
- US and Russian officials met without Ukrainian representatives and have agreed to further discussions. US President Trump expects to meet Russian President Putin before the end of February. Russia’s foreign minister said that they would not accept NATO troops in Ukraine but Ukraine requires a security guarantee. Meanwhile, the US’ Rubio has said that sanctions won’t be lifted until there is a deal.
- With a peace unlikely to be imminent, Europe’s storage refilling problem ahead of next winter persists. Futures prices for the spring/summer months are similar to the current March contract and are several euros above late 2025/early 2026 prices. Europe is looking to increase its LNG imports as storage levels are currently around 44%.
- US natural gas rallied 7.8% to reach the $4-mark driven by freezing weather. Prices are now up almost 32% this month as the weather shifted colder. Record flows to LNG export terminals are also boosting prices.
- Europe has to compete with other regions for global LNG supplies and Argentina has said that it will begin purchasing early next month for the southern hemisphere winter. It relies on gas for heating. The same time of year may see an increase in gas demand in Asia for cooling.
AUSSIE BONDS: Post-Presser Sell-Off Extends After A Heavy Session For US Tsys
ACGBs (YM -1.0 & XM -2.0) are modestly weaker, extending yesterday’s post-RBA presser sell-off.
- US data was mixed overnight, with Empire State manufacturing beating and NAHB sentiment missing.
- Cash US tsys bear-steepened after Monday's holiday: the 2-Yr yield up 4bps at 4.30%, 5-Yr up 7bps at 4.40%, 10-Yr up 7bps at 4.55%, and 30-Yr up 7bps at 4.77%.
- Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential at -3bps.
- Swap rates are flat to 1bp higher.
- The bills strip little changed.
- Yesterday, RBA Governor Bullock noted the labour market’s unexpected strength and cautioned that market expectations for further rate cuts are not guaranteed.
- RBA-dated OIS pricing is slightly firmer today, but 1-9bps firmer versus yesterday’s pre-RBA levels, with late 2025 leading. A 25bp rate cut in April is given a 20% probability, with a cumulative 45bps of easing priced by year-end.
- Today, the local calendar will see Q4 wages, ahead of January jobs data tomorrow.
- The Q4 WPI is forecast to post another 0.8% q/q rise bringing the annual rate down to 3.2% from 3.5% in Q3. January employment is projected at +20k, with the unemployment rate rising 0.1pp to 4.1%.
- AOFM plans to sell A$800mn of the 2.75% 21 June 2035 bond today.
