ASIA FX: Most USD/Asia Pairs Higher, USD/CNY Rebounds From 200-day MA Support

The RBA decision is published on February 18 and the AUD OIS market has a 90% chance of a 25bp rate cut with between 3 and 4 25bp moves by end-2025 and as MNI discussed last week, the RBA rarely doesn’t ease if the market expects it to. In terms of the data, inflation indicators have been lower than the RBA’s November forecasts, activity has been more mixed and the labour market stronger.

• The Citibank Economic Surprise Index has generally been in positive territory since mid-2024. It is also higher than in December. February to date has averaged 15.7 up from January’s 7.1 and December’s 7.6. Therefore, disappointing data is unlikely to be the reason for the RBA to begin easing.
• In terms of the RBA’s November forecasts, the picture is a little different. Inflation data have printed below its projections with both the trimmed mean and headline 0.2pp lower in Q4. To achieve its Q4 WPI forecast of 3.4% y/y, the index would have to rise 1.0% q/q, which seems unlikely as it would be the highest since Q4 2023.
• The RBA will provide an update at the February meeting and any change to the timing of achieving the 2.5% mid-point will be important. It is currently expected in Q4 2026.
• Activity data are suggesting a tentative recovery with Q4 household spending volumes rising 1.4% y/y and nominal imports of consumer and capex goods rising. The RBA forecasted Q4 consumption in the national accounts to rise 1.0% y/y, which requires around a 0.7% q/q increase, which Q4 consumer data suggests is certainly plausible. It has GDP rising 1.5% y/y in Q4, which needs a 0.8% q/q rise, which may still be too strong.
• The labour market has surprised analysts and the RBA to the upside with the unemployment rate in Q4 0.3pp below the RBA’s forecast and employment growth moderately stronger. 

Australia Citibank data surprise index

Source: MNI - Market News/Bloomberg

JGB futures are weaker, -6 compared to the settlement levels, after dealing in a relatively narrow range.

• According to MNI’s technicals team, a clear downtrend in JGB futures remains intact and the latest fresh cycle lows reinforce this condition.
• Outside of the previously outlined Current Account Balance and Bank Lending data, there hasn't been much by way of domestic drivers to flag.
• Cash US tsys are flat to 1bp richer in today’s Asia-Pac session after Friday’s heavy post-payrolls session. Headlines have crossed from Bloomberg, with US President Trump stating that the US will announce tariffs of 25% on all steel and aluminium imports from Monday. Trump didn't announce a time when these tariffs will take effect.
• That aside, the focus this week is on Chairman Powell's mon-pol testimony to Congress on Tuesday-Wednesday, and CPI and PPI inflation measures on Wednesday and Thursday respectively.
• Cash JGBs are flat to 2bps cheaper across benchmarks, with the belly underperforming. The benchmark 10-year yield is up 1.9bps at 1.321%, after hitting a new cycle high of 1.328%.
• Swap rates are 1bp lower to 1bp higher. Swap spreads are tighter.
• Tomorrow, the local market is closed for the National Foundation Day holiday. 

USD indices are holding higher in the first part of Monday trade, the BBDXY index last above 1303, aided by the latest Trump tariff threats. 

• In early trade, headlines crossed from Trump that steel and aluminium tariffs would be announced US Monday time (although no timing on when they come into effect). These headlines drove USD gains across the board, but we now sit away from best levels.
• AUD/USD got to lows of 0.6231, but sits higher now at 0.6270, only down slightly on end Friday levels. Australian PM Albanese is looking to speak to Trump re the latest tariff news, no doubt seeking an exemption from the proposed Monday announcement. Metal prices have also been firmer, albeit at the margin Iron ore was last around $106.50n/ton. NZD/USD was last near 0.5655, also up from earlier lows.
• USD/CAD is holding higher, last near 1.0445, off around 0.35% in CAD terms. Earlier highs were at 1.4380. Canada is exposed via both steel and aluminium exports to the US.
• Some negative spill over may be evident for JPY as well, given its steel exports to the US, although meetings at the end of last week between Japan PM Ishiba and Trump didn't suggest Japan was in Trump's trade crosshairs.
• US equity futures quickly reversed earlier losses from the tariff headlines as well, a likely yen headwind. USD/JPY did get to highs of  152.21, but sits back at 151.90/95 in latest dealings, around 0.30% weaker in yen terms.  
• US yields are down slightly in the first part of Monday trade.
• Looking ahead, Later US January NY Fed 1-year inflation expectations print and ECB President Lagarde speaks.