CNH: USD/CNY Fixing Back Above 7.1700, But Within Recent Ranges

• CHINA SETS YUAN CENTRAL PARITY AT 7.1716 TUES VS 7.1707

The AUD/NZD cross has broken higher, the pair comfortably to fresh multi-month highs, last near 1.1130. These levels were last seen back in Nov last year. We are above key EMAs, the 20-day is back close to 1.1070. Late Nov highs for the pair were at 1.1180, in terms of potential upside targets in the pair. Beyond that is the 1.1200 figure level, a level which we haven't breached since 2022. 

• The chart below plots the AUD/NZD cross (white line) against the AU-NZ 2yr swap rate differential (green line), along with a AU to NZ relative commodity price series (sourced from DB and CBA).
• The correlation with swap rate differentials remains firm, although the 2yr spread is off recent highs in latest dealings, close to +40bps. Commodity price differentials have been in NZD's favor amid higher dairy prices, although are drifting back AUD's way more recently (from low levels).
• The Bloomberg spot metals index rose 1.22% on Monday, the 6th straight gain, while iron ore prices are just off multi month highs. Spill over from other commodity gains post Trump tariffs on steel and aluminium were a potential Monday positive. Such strength may have aided the AUD/NZD cross since the start of the week, but further material upside in the cross may take swap spreads to shift higher.
• In terms of the data outlook, there isn't much in the way for the AUD until next week's RBA decision (out on Tuesday). A rate is forecast by the sell-side and closed to fully priced by the market.
• In NZ, on Thursday we have inflation expectations for Q1. Early tomorrow morning, NZ Treasury Chief Economic Advisor Stephens talks on the state of the economy. 

Fig 1: AUD/NZD Versus AU-NZ 2yr Swap Spread & AU/NZ Relative Commodity Prices

Source: DB/CBA/Market News - MNI/Bloomberg 

NAB January business confidence picked up to +4 from -2, its highest in three months. The series has been oscillating around the zero mark for around two years. Conditions moderated further to +3 from +6, in line with the November outcome. The price/cost components remained elevated but below cycle highs and labour demand is above the 2024 trough. More data painting a mixed picture ahead of the RBA’s February 18 meeting. 

• Final product price rises appear to have troughed with January rising 0.8% 3m/3m after a low of 0.58% in September. Retail prices were also higher +0.9% 3m/3m after 0.7% seasonally adjusted in December. Also labour costs picked up to 1.8% 3m/3m from 1.4% in December, but purchase costs moderated to 1.1% from 1.4%. 

Australia NAB business price/cost components 3m/3m %

• Two of the three components in business conditions declined with trading at 6.4 after 9.8 and profitability -1.7 down from +3.9 and the lowest since June 2020. However, employment rose slightly to 4.8 up over 4 points from the June trough, in line with signs of stabilisation in the labour market.
• Forward-looking orders remained negative at -2.8 deteriorating from -1.5 but still better than April’s -8.0. Exports turned negative to -1.0. 

Australia NAB activity