CNH: USD/CNY Fixing Edges Down, Error Term Narrower

The USD/CNY fix printed at 7.1788, versus a BBG market consensus of 7.2624.

• Today's fixing edged higher for the fourth straight session. We are still below Jan 20 levels for the fixing though (7.1886).
• The fixing has re-widened further to -836pips, consistent with higher USD index levels.
• USD/CNH has drifted a little higher in recent dealings, but at 7.2660/65 remains sub Monday intra-session highs near 7.2680. 

In today's Asia-Pac session, TYM5 is 110-17+, unchanged from closing levels.

• Cash US tsys are little changed in today's Asia-Pac session after yesterday's heavy session.
• Yesterday, expectations that the April 2 reciprocal tariffs would be flexible, with breaks to countries and sectors as suggested Friday, and would not be as onerous as the more sweeping measures initially threatened underpinned US equities.
• Concession building ahead of the $183bn in auctions this week added to the selloff, as did the somewhat hawkish comments from the Fed's Bostic.
• Atlanta Fed Pres Bostic (non-2025 FOMC voter) said in a Bloomberg interview that he has reduced his 2025 rate cut expectations to 1 in March's economic projections versus 2 previously, "because I think we will see inflation be very bumpy", and delayed inflation progress warranted pushing back the path to neutral rates.
• US 2- and 10-year yields were both up 9bps yesterday.

The FY2026 budget is announced at 1930 AEDT today and is widely expected to show deficits across the forecast horizon and an upward revision to the debt ratio. With an election due by May 17 and 33 days needed between the announcement and the vote, this budget is likely to include numerous sweeteners for voters, with a 6-month extension to the electricity rebate already announced (costing $1.8bn). 

• The RBA will consider the details before next week’s meeting but they are unlikely to change the expected on hold outcome. It already revised up its public demand forecasts in February across the period to Q4 2026.
• Revised economic forecasts from Treasury will be included and are likely to include warnings that global uncertainty is particularly high at the moment and going forward.
• The government has also said that $2.1bn of spending will be either cut or reprioritised with $720mn of reduced spending on contractors contributing.
• The Australian notes that the opposition estimates that government spending announcements over the last three months amount to over $67bn. More than $9bn of increased funding for health including incentives for bulk billing and subsidies for cheaper medicines has been announced but spread over time to 2029. Cyclone Alfred relief will add to spending over the short-term.
• There is unlikely to be additional defence spending with around $1bn already planned to be brought forward.