RBA: Unchanged Rates Resulted In CPI Undershoot, Need More Good Inflation News

Former RBA officials share their outlook for 2025 cuts. On MNI Policy MainWire now, for more details please contact sales@marketnews.com. 

Asian markets experienced significant fluctuations Tuesday following U.S. President Donald Trump's warnings of 25% tariffs on Canada and Mexico by February 1, which dented earlier optimism about a gradual trade policy approach. South Korean stocks turned lower as Trump ordered a review of global trade practices, with battery and chemical shares plunging, though chipmakers saw gains. In China, markets briefly pared gains before recovering, supported by hopes that China may avoid immediate tariff measures, although the offshore yuan weakened.

• South Korean stocks fell after initially opening higher, with the KOSPI losing 0.37% by late morning as Trump’s trade policy review rattled sentiment. Battery and chemical shares were among the biggest losers, with LG Energy Solution dropping 5.4% and POSCO Future M plunging 10%. However, chipmakers like SK hynix and Hanmi Semiconductor gained 1.4% and 2.22%, respectively, helping limit broader losses.
• Taiwans TAIEX is little changed today, as TSMC and Hon Hai trades unchanged to 0.20% higher.
• Japanese equities erased early gains as Trump’s tariff threats on Canada and Mexico dashed hopes for a moderate trade policy. Benchmark indices the TOPIX & Nikkei are now trading mixed although wrapped around unchanged for the day. Export-reliant carmakers were among the hardest hit, with Mazda Motor dropping 2.6%, as investors priced in potential risks to U.S.-bound exports.
• Australian equities saw swings with the wider market however are trading 0.50% higher now, led by gains in Financials.
• Trump’s tariff threats on Canada and Mexico weighed heavily on Asian sentiment. The Canadian dollar and Mexican peso tumbled as much as 1.4% and 0.9%, respectively, dragging down global risk appetite and reinforcing concerns about escalating trade tensions.

ACGBs (YM +5.0 & XM +5.5) are stronger and close to Sydney session highs. 

• Cash US tsys are 6-9bps richer in today’s Asia-Pacific session, with a flattening bias, following yesterday’s holiday. The session has been marked by volatility, driven by reports that Trump suggested tariffs on Canada and Mexico might take effect on February 1. While gains were briefly pared, US tsys have since rebounded, trading near session bests.
• The local calendar is light this week after key December labour market data last Thursday. The highlights are the Westpac Leading Index tomorrow and S&P Global PMIs (P) on Friday. The focus is now on Q4 CPI data released on Wednesday, January 29.
• Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at -13bps.
• Swap rates are 4bps lower.
• The bills strip has bull-flattened, with pricing flat to +4.
• RBA-dated OIS pricing is flat to 4bps softer across meetings today. A 25bp rate cut is more than fully priced for April (106%), with the probability of a February cut at 68% (based on an effective cash rate of 4.34%).
• The AOFM plans to sell A$800mn of the 2.75% 21 June 2035 bond tomorrow and A$700mn of the 1.50% 21 June 2031 bond on Friday.