BONDS: NZGBS: Slightly Cheaper, Trade Tensions In Focus
In local morning trade, NZGBs are 1bp cheaper after US tsys finished Friday with modest losses.
- US tsys were little changed after the economic data but edged higher in yield later in the session. 10-year notes closed 2bp higher at 4.54%.
- Financial markets were volatile into the global close amid conflicting news on the timing for implementing tariffs on US imports. Confirmation that tariffs would be set for Canada and Mexico at 25%, and China at 10%, and begin this week, saw equities retrace earlier gains.
- Over the weekend, Canada and Mexico have announced retaliatory tariffs on the US. In addition, China has said it will take counteractive measures and file a lawsuit with the World Trade Organisation. Trade tensions will remain in focus as markets open for the week.
- China is much more diversified than Canada and Mexico with only 13.3% of its 2024 goods exports going to the US down from 14.8% in 2023. They were worth 2.8% of GDP in 2023. 6.9% of US exports went to China in 2024.
- Swap rates are 1-2bps higher.
- RBNZ dated OIS pricing is little changed. 48bps of easing is priced for February, with a cumulative 123bps by November.
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Historical bullets
USDCAD TECHS: Bull Flag Highlights A Clear Uptrend
- RES 4: 1.4669 2.0% 10-dma envelope
- RES 3: 1.4539 3.382 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 2: 1.4508 3.236 proj of the Oct 17 - Nov 1 - 6 price swing
- RES 1: 1.4467 High Dec 19
- PRICE: 1.4392 @ 15:50 GMT Jan 3
- SUP 1: 1.4336 Low Dec 20
- SUP 2: 1.4307/4232 20-day EMA / Low Dec 17
- SUP 3: 1.4136 50-day EMA
- SUP 4: 1.4011 Low Dec 5
USDCAD is unchanged and bulls remain in the driver’s seat. The latest pause appears to be a flag formation - a bullish continuation signal. Note too that moving average studies are in a bull-mode position, highlighting a dominant uptrend. Sights are on 1.4508 next, a Fibonacci projection level. Initial firm support to watch lies at 1.4307, the 20-day EMA. A pullback would be considered corrective.
AUDUSD TECHS: Southbound
- RES 4: 0.6471 High Dec 9
- RES 3: 0.6408 50-day EMA
- RES 2: 0.6341 High Dec 18
- RES 1: 0.6247/6282 High Dec 30 / 20-day EMA
- PRICE: 0.6204 @ 15:21 GMT Jan 3
- SUP 1: 0.6179 Low Dec 31
- SUP 3: 0.6158 1.236 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 3: 0.6100 Round number support
- SUP 4: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
A bearish trend condition in AUDUSD remains intact and the pair continues to trade closer to latest lows. Recent weakness maintains the price sequence of lower lows and lower highs. Note that moving average studies are in a bear-mode position too, highlighting a dominant downtrend. Scope is seen for an extension towards 0.6158 next, a Fibonacci projection. Initial firm resistance to monitor is 0.6282, the 20-day EMA.
US TSYS: Near Late Friday Lows
- Treasury futures looked to finish near late session lows Friday, early support evaporating after the December manufacturing ISM survey beat expectations, but still pointed to soft if improving sectoral dynamics. The headline reading of 49.3 was an improvement from 48.4 prior and a 9-month high, besting the survey expectation of 48.4.
- Tsy curves bear steepened briefly before retreating mildly flatter in the second half. In turn, projected rate cuts through mid-2025 look steady to lower vs. this morning's levels (*) as follows: Jan'25 steady at -2.8bp, Mar'25 -13.2bp (-14.4bp), May'25 -17.8bp (-19.5bp), Jun'25 -26.5bp (-28.2bp).
- Focus on next week: economic data and Treasury supply has been moved forward to accommodate next Thursday's "day of mourning" to honor President Carter. The Federal holiday sees most markets closed, the exception so far is CME rates that will operate on a shortened session.
- Next Thursday's weekly jobless and continuing claims will be released on Wednesday according to the Dept of Labor site LINK
