FOREX: Moderate FX Moves During APAC Session, Yen Underperforming

Asian equities rebounded sharply as US President Donald Trump delayed tariffs on Mexico and Canada, fueling hopes of a potential reprieve for China. Hong Kong stocks surged, with the Hang Seng China Enterprises Index jumping nearly 4% before paring gains, its biggest move since October, as markets anticipated trade talks between Trump and Xi. Japan’s Nikkei 225 rose 1.6%, led by auto and electronics stocks, while South Korea’s Kospi climbed 1.6%. Australia’s ASX 200 edged up 0.13%, supported by gains in tech and mining stocks, with gold miners benefiting from record-high gold prices.

ACGBs (YM -4.0 & XM -5.5) are cheaper after dealing in relatively narrow ranges on a second-tier data day.

• Outside of the previously outlined household spending and ANZ-Roy Morgan Consumer Confidence, there hasn't been much by way of domestic drivers to flag.
• Cash US tsys are 1-2bps cheaper in today’s Asia-Pac session after yesterday’s modest sell-off following news that President Trump agreed to delay a 25% tariff on Mexico and Canada.
• Cash ACGBs are 5bps cheaper with the AU-US 10-year yield differential at -14bps.
• Swap rates are 4-5bps higher.
• The bills strip has bear-steepened with pricing -1 to -6.
• RBA-dated OIS pricing is flat to 4bps firmer across meetings today. A 25bp rate cut is more than fully priced for April (136%), with the probability of a February cut at 91% (based on an effective cash rate of 4.34%).
• Tomorrow, the local calendar will see S&P Global Composite & Services PMIs.
• The AOFM announced the issue by syndication of a new 4.25% 21 March 2036 Treasury Bond. The issue will be of a benchmark size. Initial price guidance is a spread of 2 to 5bps to XMH5. The issue is expected to be priced tomorrow.

The USD BBDXY index is back close to session highs as the China tariff deadline approaches (around 40mins away), last near 1308. USD/CNH is little changed, last around 7.3100, sub earlier highs above 7.3200. Overnight USD/CNH implied vol is around 8%, off earlier highs near 10.9%. 

Higher beta FX is underperforming marginally in the G10 space. AUD/USD was last near 0.6200 just up from session lows (down a little over 0.40%), while NZD/USD is back around 0.5600/05, down close to 0.50%. EUR and JPY are both off close to 0.30%. EUR/USD at 1.0310/15 is near worst levels for the session, while USD/JPY (at 155.20/25) is just under session highs (155.41).