ASIA FX: South East Asia Currencies Firmer, IDR Aided By Higher Equities

Asian equities are mostly higher today. Hong Kong stocks are leading gains, with the Hang Seng China Enterprises Index rising 2.40% driven by tech stocks like Alibaba and Xiaomi. Optimism grew following President Xi Jinping’s meeting with business leaders, signaling a more supportive stance toward the private sector. Australia's RBA lowered rates for the first time in 4 years, the ASX200 hasn't liked the hawkish comments from Gov Bullock.

• Japan’s markets advanced, with the Nikkei rising 0.65%, supported by gains in defense stocks after European Union leaders discussed increasing military spending. The Nikkei is testing last weeks highs, with a break here likely to see the Index look to retest the 40,000 area. Tech shares are trading well following positive headlines out of China with expectations that they may ease regulatory pressure on the sector, Tokyo Electron is 2.40% higher.
• Hong Kong listed equities continue to outperform their mainland peers, with the HSI up 2.20%, while the CSI 300 trading just 0.40% higher. Tech stocks are the best performing sector with the HSTech Index +3.50%, while property stocks are underperforming with the Mainland Property Index 0.40% lower.
• Taiwan's TAIEX is 0.40%, while South Korea's KOSPI is 0.50% higher
• Australia’s ASX200 has slipped 0.65% although most of this came prior to the RBA hawkish cut. The AUD is holding near a two-month high. Meanwhile, BHP’s first half profit fell 23%, with weak Chinese demand for iron ore and copper, hurting results

ACGBs (YM -5.0 & XM -4.0) have weakened since RBA Governor Bullock’s press conference, which followed the RBA’s decision to cut the cash rate by 25bps to 4.10%.

• RBA Governor Bullock emphasised that while high interest rates have been effective, inflation is not yet fully under control. She noted the labour market’s unexpected strength and cautioned that market expectations for further rate cuts are not guaranteed.
• Future rate decisions will depend on inflation data, wage pressures, and supply-side recovery. Bullock also stated that the market's projected rate path may be unrealistic if the RBA aims for its 2.5% inflation target.
• Additionally, she clarified that rates will not return to pandemic-era lows. The board carefully weighed multiple factors before making its latest decision.
• Cash US tsys are 1-4bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s holiday.
• Cash ACGBs are 4-5bps cheaper on the day with the AU-US 10-year yield differential at -2bps.
• Swap rates are 4-5bps higher on the day.
• The bills strip has bear-steepened, with pricing flat to -6.
• RBA-dated OIS pricing is flat to 7bps firmer after the RBA Decision across meetings, with December leading. 

The USD has mostly recovered ground through the first part of Tuesday trade. The BBDXY index is up over 1290, +0.25% firmer versus end Monday levels. The A$ is the clear outlier, close to unchanged, after the RBA delivered a hawkish 25bps cut. 

• AUD/USD tracks near 0.6350/55 in latest dealings, close to post RBA highs, 0.6368. As widely expected the central bank cut rates by 25bps, but pushed against current market pricing for further cuts over the next 12 months. RBA Governor Bullock stated that the central bank won't hit the mid point of its 2-3% target band given current market pricing (which is an input into its inflation outlook).
• The AUD/NZD cross has pushed back into the 1.1130/40 region, close to recent highs (1.1149). Late 2024 highs were at 1.1180, in terms of upside targets. AU-NZ 2yr swap spreads have edged up. Note we have the RBNZ decision tomorrow.
• NZD/USD is back down close to 0.5700, off around 0.50%. To the downside, a hold above the 50-Day EMA at 0.5700 is important, a break here would open a move to 0.5668 (20-day EMA). 0.5763 is upside resistance the Dec 18 high.
• USD/JPY has pushed back above 152.00, earlier lows were at 151.24. Earlier positive remarks on the economy only provided brief support for the yen.
• US cash Tsy has resumed after Monday's holiday, with yields pushing higher, the 10yr back above 4.51%. The Fed's Waller saying recent economic data support keeping interest rates on hold in earlier remarks.
• Elsewhere, US equity futures are up a touch, while Hong Kong markets continue to rally, but this hasn't spilled over more broadly.
• Later the Fed’s Daly and Barr speak and February US Empire manufacturing and NAHB housing print. There are also UK labour market data, February euro area ZEW and January Canadian CPIs. The ECB’s Cipollone participates in an MNI Connect event.