AUSSIE BONDS: ACGB Jun-31 Supply Faces A lower Yield But A Steeper Curve

ACGBs (YM -2.0 & XM -3.5) are cheaper after a directionless NY session ahead of the December CPI report and the start of the earnings season today. 

• Tame PPI gave US tsys a bid but the market ranged either side of unchanged on the day and closed mixed with the curve steepening 3bps to 42 bps.
• The focus turns to today's headline CPI inflation data for December.  Analysts are looking for core goods inflation between 0.2-0.3% M/M after it accelerated to 0.31% M/M in Nov for a 19-month high. That was the third consecutive monthly increase in core goods prices after sequential deflation in 14 of the previous 15 months.
• Cash ACGBs are 2-3bps cheaper with the AU-US 10-year yield differential at -15bps.
• Swap rates are 3-4bps higher.
• The bills strip -1 to -3, with a steepening bias.
• RBA-dated OIS pricing is flat to 3bps firmer across meetings today. A 25bp rate cut is less than fully priced for April (98%) now, with the probability of a February cut at 66% (based on an effective cash rate of 4.34%).
• Today, the local calendar is empty.
• AOFM Bond issuance will issue A$800mn of the 3.50% 21 December 2034 bond today. A$700mn of the 2.75% 21 November 2027 bond will be sold on Friday. 

USD/CNH didn't deviate too far out of the 7.3400/7.3500 range post the Asia close on Tuesday. The pair tracks around 7.3450 in early Wednesday dealings (little net change was seen on Tuesday). Spot USD/CNY held above 7.3300, but sits slightly off recent highs. The CNY CFETS basket tracker was also little changed Tuesday, ending at 101.63 (per BBG). 

• For USD/CNH we remain above the 20-day EMA support point, which was last near 7.3290. Recent highs near 7.3650 remain intact on the topside.
• We had Dec new loans and aggregate finance data print late yesterday. The headlines were better than expected, although the details show the result was driven by stronger government bond issuance. Loan demand from the private sector was weak through 2024 as a whole though.
• Other data showed capital outflow pressures were evident late in 2024 in terms of the FX settlement data for Dec. The settlement ratio fell back to 60% from recent highs of 70% in Sep last year.
• Elsewhere, the People’s Bank of China will take further measures to ensure a stable yuan exchange rate while strengthening counter-cyclical moves to support the economy, deputy-governor Xuan Changneng told a press conference on Tuesday. This is line with rhetoric from earlier in the week.
• Incoming US President Trump stated an External Revenue Service would be created to collect tariff duties (although details were light, see this BBG link). This comes after yesterday's BBG report that gradual tariff hikes were being considered by Trump's key economic advisors.
• The China data calendar is empty today. 

• NZD/USD closed 0.34% higher on Tuesday, at 0.5602. The pair was supported by China's recent stimulus measures and improved market sentiment tied to US President-elect Trump's potential gradual tariff implementation.
• PBOC officials reiterated plans to use monetary tools, stabilize the Yuan, and support liquidity, while emphasizing China’s role in driving global economic growth. Meanwhile, the BBDXY retreated from recent highs, falling 0.44% as hawkish Fed sentiment pushed Treasury yields higher, with markets now focusing on upcoming US CPI data for further direction, following a softer than expected PPI print overnight.
• New Zealand's Employment Confidence Index rose 2.4 points to 91.6 in Q4, signaling continued labor market pessimism but with signs of stabilization. Perceptions of current job opportunities improved for the first time in two years, while expectations for job security and earnings remained relatively steady.
• Technical indicators still remain bearish, with spot trading below all key moving averages, the pair is at risk of testing the 13-year low of 0.5470 if it breaks below 0.5500. Initial support is 0.5543 (Jan 10 lows), while to the upside a break above 0.5640 (20-day EMA) before any sort of momentum change can occur.
• The NZ-US 2yr swap rose 15bps on Tuesday, closing at -72bps. On Friday it hit a new yearly lows of -95.5bps just off all time lows of -100bps
• Expiries for today include 0.5875 (NZD606m), 0.6075 (NZD425.8m). Upcoming notable strikes: 0.5885 (NZD453.7m Jan. 16), 0.6300 (NZD381m Jan. 16), 0.5555 (NZD311.8m Jan. 16)
• The local calendar is empty today