MEXICO: "SHEINBAUM CONFIRMS EDGAR AMADOR AS MEXICO'S NEW FINMIN" - BBG

• RES 3: 97.190 - High May 5 2023
• RES 2: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg 
• RES 1: 96.290/360 High Feb 5 / High Dec 11  
• PRICE: 96.270 @ 15:45 GMT Feb 05
• SUP 1: 95.830 - 1.000 proj of the Dec 11 - 20 - 31 price swing  
• SUP 2: 95.760 - Low 14 Nov ‘24
• SUP 3: 95.480 - Low Jan 11 2023 and a major support 

A bear cycle in Aussie 3-yr futures remains intact and short-term gains are considered corrective. On the upside, a clear reversal higher would signal scope for an extension towards 96.360, the Dec 11 high. The recent move down reinforces the bear theme and the contract has traded through the December low. A deeper sell-off would refocus attention on 95.760, the 14 Nov ‘24 low. 

Treasury Secretary Scott Bessent implied Wednesday in his first interview since taking office that the Trump administration would take a hands-off approach to Federal Reserve policy, while reiterating his "3-3-3" economic plan and noting that the so-far threatened/implemented Trump tariffs were "not a revenue issue right now".

• On interest rates, he said that he and the president were focused on lowering 10 year Treasury yields rather than Fed rates per se.
• Asked whether Trump wants lower interest rates and a lower dollar, Bessent responded:  "the president wants lower interest rates, and what he sees in my talks with him, that he and I are focused on the 10 year Treasury, and what is the yield of that." and Trump "is not calling for the Fed to lower rates.” And regarding the Fed, he said  “I will only talk about what they’ve done, not what I think they should do from now on."
• Indeed he reiterated a pre-Trump inauguration observation that long-end yields rose after the September FOMC cut. And "now I've seen this year, despite the growth estimates going up, 10 year yields are coming down, because I believe the bond market is recognizing that you and I talked about energy prices will be lower, and we can have non inflationary growth."
• On the US dollar: "you can be a reserve currency, and the price is going to fluctuate based on the market. And as I said, he wants lower rates. He is not calling for the Fed to lower rates. He believes that if we do all the things that you and I have talked about today, if we the deregulate the economy, if we the get this tax bill done, the if we get energy down, the then rates will take care of themselves and the dollar will take care of itself." He adds: "I can tell you, there is no alternative to the dollar. These other countries can talk about it. They may try to take away our reserve currency status, but there is no other reserve currency on the horizon."
• On tariffs, Bessent said that the latest measures relating to Canada/Mexico/China were "not a revenue issue right now", instead relating to the "fentanyl crisis". But he says "I think tariffs are a means to an end, and I think that end is bringing the manufacturing base back to the US. In theory, tariffs would be a shrinking ice cube, that you would tariff a country, and then as the production comes back to the US, the income tax, the corporate revenues and the income tax goes up, and the tariff income would go down. The current account deficit goes down. Our trade deficit goes down. So tariffs are a mean to means to an end to reshore economic security in the US."
• As for fiscal priorities, Bessent highlighted that President Trump wanted to make tax cuts permanent, with the US government not having a "revenue problem", but rather a spending problem, with wider fiscal deficits having boosted growth in recent years. He also noted that "we are going to use current policy scoring" for the fiscal scoring on the upcoming budget measures.
• His "3-3-3" plan is to achieve a 3% federal government deficit, 3% GDP growth, and a 3mln barrel per day equivalent energy production increase in the US (he clarifies this means "total liquids, including nat gas, we're at about 21[million] now, so it'd be about a 15% increase on that base, which would hold down inflation".
• "Over the next few years, by the end of President Trump's term, getting the deficit to GDP, down to something with the three in front of it, three and a half percent. That's our long term average. I think by cutting regulation, by sending the right signals to the market, we can create 3% plus economic growth, non inflationary economic growth"

RBA-dated OIS pricing is flat to 3bps softer across meetings today. 

• Additionally, pricing is 4-13bps softer across meetings compared to pre-Q4 CPI levels on 24 January, with the August meeting showing the largest decline.
• A 25bp rate cut is more than fully priced for April (136%), with the probability of a February cut at 90% (based on an effective cash rate of 4.34%).  

Figure 1: RBA-Dated OIS – Today Vs. Pre-Q4 CPI

Source: MNI – Market News / Bloomberg