CNH: USD/CNH Back Above 7.2700, Little Cross-Asset Impact From NPC At This Stage

At the Tokyo lunch break, JGB futures are holding stronger, +23 compared to settlement levels, but slightly off session bests.

• BoJ board members expressed concerns about the weakening yen and its impact on inflation at their January policy meeting according to a summary of opinions. Uncertainty about the impact of President Trump's policies and the US economic outlook was also discussed.
• The BoJ is likely to continue monitoring the yen's value and may raise rates again in the future to avoid excessive depreciation and its effects on inflation.
• In today’s Asia-Pacific session, cash US tsys have twist-flattened, with yields ranging from 5bps higher to 3bps lower after the weekend’s tariff news. This week’s focus will be on a heavy slate of corporate earnings, key CPI and PPI inflation data, and January’s headline employment report.
• Cash JGBs are mixed across benchmarks, with yields 2bps lower to 1bp higher. The benchmark 10-year yield is 1.3bps lower at 1.232% versus the cycle high of 1.262%.
• Swap rates are 1-2bps lower. Swap spreads are slightly mixed.

December building approvals printed below expectations due to weakness in the private houses component. The number of approvals rose 0.7% m/m with annual growth rising 12.2% up from 3.6%. The solid result was due to the volatile multi-unit component which increased 15.2% m/m to be up 42.7% y/y, whereas houses fell 3% m/m, the third consecutive decline, to be down 1.8% y/y. With the working age population rising 127k over Q4 and housing shortages persisting, building approvals need to rise to improve affordability and lower rental inflation.

• The fall in the number of private house approvals was broad-based across states, with only NSW recording an increase. The rise in apartment approvals was concentrated in NSW and Queensland.
• New home inflation has been moderating and in December the value of total residential building approved fell 0.9% m/m despite a rise in the total number of approvals.

Australia number of dwelling approvals y/y%

The USD remains on the front foot, the BBDXY index up over 1%, last near 1322. This is just short of levels above 1323, which have marked highs back to 2022. 

• AUD and NZD are marginally the weakest performers at this stage. AUD/USD is down to 0.6110,  which were levels last seen in 2020. NZD/USD is around 0.5535, but hasn't tested sub 2022 lows near 0.5500 yet. Both currencies are around 1.75% weaker so far today.
• We just had the Caixin manufacturing print for China which was below forecasts at 50.1, against 50.6 expected. Earlier Australian data was better than expected from a retail sales standpoint, but this has had little lasting impact on AUD.
• EUR/USD is near 1.0235/40, comfortably above 1.0141, which was recorded not long after today's open, no doubt when liquidity has been lighter. Earlier remarks from Trump reiterated recent threats on tariffs against the EU, stating they were definitely happening but not providing a time line. EUR options activity has been dominating so far, although with a mixture of strike levels above and below current spot levels.
• Trump also stated in the earlier remarks he will speak to the leaders of Canada and Mexico Monday morning local US time. This remark saw a brief dip in USD/CAD, but moves under 1.4700 have been supported. We were last around session highs at 1.4750.
• Markets will be hoping such calls lead to negotiations and lowered tariff levels. USD/CAD FX options activity has been skewed towards higher USD call levels  
• USD/JPY is higher, back to 155.80, up around 0.40%, so still outperforming broader USD gains. The rise up in US yields at the front end, is helping US-JP 2yr differentials, but back end yields are down slightly. US equity futures remain in the red. Regional equity markets are mostly down as well.