JPY: JPY/KRW Can't Sustain 9.6000 Handle, But Dips Likely To Be Supported

Oil prices have been trading in a narrow range during today’s APAC session after falling this week. WTI is down slightly at $75.77/bbl after a low of $75.62 and high of $75.95. Brent is moderately higher at $79.32/bbl following a low of $79.16 and high of $79.41. The USD index is  up 0.1%.

• Later US industry-based inventory data for last week is released. Recently stocks have been consistently drawdown. With the prospect of 25% tariffs on imports from Canada starting February 1, they may rise this week and next as both producers and refiners sharply front load supplies. The tariffs, if implemented, could increase US fuel prices with refineries in the Midwest geared for heavy Canadian crude.
• The new US administration has made the prospect of increased trade protectionism very real, while increasing the possibility of tighter sanctions against Iran and Venezuela. It has also said that if Russia doesn’t negotiate on a peace deal for Ukraine, it will also enhance sanctions against it.
• Today President Trump also suggested a 10% tariff on Chinese goods as a result of the fentanyl problem.
• Later US December leading index prints and ECB President Lagarde and Bundesbank’s Nagel speak. 

• The NZD/USD is trading 0.4% lower to 0.5656, pressured by weaker-than-expected Q4 CPI data and rising bets on an RBNZ rate cut next month. The Kiwi is the worst performing G10 currency today.
• Non-tradeable inflation slowed to 0.7% q/q, the weakest since Q1 2021, softening rate expectations further, with swaps pricing in a 48bps now for the February meeting, from 44.5bps at Tuesday's close.
• Macro and leveraged funds increased short positions, adding to the kiwi's weakness. However, strong dairy auction results and an upgraded milk price forecast by ASB Bank offered a slight positive counterbalance, ABS now see's milk prices at $10.25kg for 2024-2025.
• AUD/NZD remains within recent ranges, after earlier making a session high of 1.1085, it currently trades up 0.25% for the session at 1.1075. 

NZGBs closed 1-2bps richer but off session bests.

• Nevertheless, NZGBs have outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials 5-6bps tighter on the day.
• Q4 NZ CPI was close to Bloomberg consensus expectations at 0.5% q/q and 2.2% y/y after 0.6% & 2.2% in Q3, above the RBNZ’s November forecast of 0.4% & 2.1%.
• The RBNZ’s sector factor model estimate of Q4 core inflation eased 0.2pp to 3.1% y/y, close to the top of the 1-3% target band. Q3 was revised down 0.1pp to 3.3%. Given that headline CPI was impacted by volatile components such as airfares, the move lower in underlying inflation is good news and another 50bp rate cut in February remains the base case. But underlying non-tradeables inflation is proving sticky and will continue to be watched closely.
• Swap rates closed mixed, with the 2-year and 5-year 1bp lower and the 10-year 1bp higher.
• RBNZ dated OIS pricing closed 1-5bps softer across meetings, flat to 3bps softer than pre-CPI levels. 47bps of easing is priced for February, with a cumulative 112bps by November 2025.
• Tomorrow, the local calendar will see Net Migration data and the NZ Government’s 5-month Financial Statements.