FOREX: Tariff Threat Drives FX Risk Off, NZD/JPY Back Close To Aug 2024 Lows

Asian equities are higher today, tracking Wall Street’s tech-led rebound, as focus shifted to the Fed's rate decision and US Big Tech earnings. Japan and Australia led gains, while most regional markets were closed for Lunar New Year. The MSCI Asia Pacific Index rose 0.2%, with Sony and Toyota among the biggest boosts.

• Japanese stocks rebounded as Nvidia’s 8.9% rally helped ease concerns over DeepSeek’s AI model impact. The TOPIX is 0.75% higher, while the Nikkei is trading 0.80% higher
• Australia's ASX 200 jumped 0.80% after cooler-than-expected inflation data boosted expectations of an RBA rate cut in February. Tech led gains (+2.3%), while uranium stocks rebounded. BHP and Rio Tinto fell, but Fortescue gained 1%.
• US equity futures are trading mixed today, with the NASDAQ up 0.10% while Dow Futures down 0.05% lower, this follows the NASDAQ jumping 2% overnight, while the S&P 500 closed 0.90% higher.
• Markets are watching the Fed's rate decision on Wednesday, where rates are expected to remain unchanged but Powell’s guidance on a possible March cut will be key. Major US tech earnings from Tesla, Microsoft, and Meta are due the same day, followed by Apple on Thursday. The ECB will also announce its policy decision on Thursday, alongside Eurozone GDP and unemployment data. Other notable releases include US Q4 GDP (Thursday), PCE inflation, and employment cost index (Friday), which will shape expectations for Fed policy in 2025.

The RBNZ began its easing cycle in August of 2024 and has now cut the OCR 125bp to 4.25% with another 50bp likely on February 19. While we won’t know the impact of this on growth for some time given GDP data lag, the RBNZ’s data for December showed the recovery in residential mortgage lending is strong and broad-based. Dwelling prices have been weak but this increase in demand should be seen here soon.

NZ new mortgage lending %

• Total new residential mortgage lending rose 53% y/y in December and seasonally adjusted +18% m/m. The data is volatile but the 3-month average of the annual rate climbed to 32.2% from 23.3%. The level is its highest in just over three years.
• The strength wasn’t due to one particular group of home borrowers. Lending to first time homebuyers rose 10.4% y/y 3-month moving average, to other owner occupiers +32.8% and to investors it soared 62.3%.

NZ new mortgage lending by type %

Source: MNI - Market News/Refinitiv

NZGBs ended the session at their strongest levels, 1-2bps richer, supported by a post-CPI spillover from ACGBs. ACGBs gained 6-8bps after Australia's Q4 CPI came in slightly below market expectations, reinforcing the likelihood of an RBA rate cut on February 18.

• The local market was slightly cheaper before the Australian CPI release, with key domestic drivers being Finance Minister Willis' appearance at a parliamentary select committee hearing and a speech from RBNZ Chief Economist Paul Conway.
• Conway noted that easing domestic pricing intentions and the recent drop in inflation expectations pave the way for further easing, as outlined in the November Monetary Policy Statement. However, he cautioned that given ongoing uncertainty, the RBNZ will need to "feel our way" as the OCR approaches neutral.
• Swap rates closed 2-3bps lower.
• RBNZ dated OIS pricing closed flat to 5bps softer across meetings, with November 2025 leading. 48bps of easing is priced for February, with a cumulative 117bps by November 2025.
• The local calendar will see Trade Balance and ANZ Business Confidence data tomorrow.
• Tomorrow, the NZ Treasury plans to sell NZ$200mn of the 1.50% May-31 bond, NZ$200mn of the 4.25% May-36 bond and NZ$100mn of the 1.75% May-41 bond.