FX:

AUD- AUD has been capped into 0.6333/35 for a few days now but stands a good chance of clearing this level early in the week. Officials from China's finance ministry, the PBOC and other govt. departments will hold a press conference today on measures to boost consumption, fanning expectations that policy heft will be brought to bear to back ambitious growth targets. The focus thus far has been mostly around addressing long term headwinds such as excess local government debt, but measures aimed at households have potential to deliver immediate demand support.

More broadly, a constructive medium term AUD outlook is clearly developing as US growth risks build and the USD's yield underpinnings are challenged by a prolonged period of policy uncertainty. Tariffs were "supposed" to land more heavily as a downside growth risk for the RoW, but instead frequent policy reversals, chaotic delivery and communication are more obviously unsettling the US outlook.

But AUD hasn't been able to fully capitalise on this story. If anything it has felt immobilised and lacking conviction. The very same narrative pointing higher medium term also implies heavy deleveraging and de-risking across markets. To AUD/USD's credit it has overall weathered an outsized US equity drawdown much better than ex-ante expectations. But its not a given that can continue indefinitely (AUD-equity correlation risk typically rises the further US equity risk premiums go up). Flush risk for AUD/USD through key tariff deadlines will be elevated in early April too, when another round of tariffs will be applied strategically for the long run.

Yet altogether AUD/USD remains in a low-key, very wide-channeled mild uptrend, developing since mid-Jan. The base of the channel sits around 0.6220. We can't entirely rule out AUD testing the base of this channel and lower levels still - the recent 0.6088 lows - for example, if de-risking escalates. But we wonder if that ultimately proves to be a false break and a long term buying opportunity. The unwinding of US exceptionalism has thus far landed on currencies very unevenly, but multi-month it is a clean broad USD negative.

AUD has to navigate local jobs and the FOMC this week. We anticipate a hawkish leaning hold, with the Fed likely putting more emphasis on higher inflation forecasts than lower growth forecasts. That might support the USD but it will likely prove fragile and short term support at best.- RF

FX Majors -

Key pillars of USD support continue to break, both domestically and offshore. The policy uncertainty shock sapping US exceptionalism, alongside the dramatic and prolonged bullish fiscal reset in Europe plainly argues for a structural rest lower in DXY. China macro sentiment is also firming. Then there's this year's strong Japan Shunto pay gains. Yield support for the USD likely continues to leak lower multi month against this backdrop.

We don't anticipate a sustained moderation in the elevated policy uncertainty environment that is sapping US growth expectations either - that is tied to the mercurial and unpredictable policy delivery and communication approach by President Trump. Administration officials have also revealed a clear willingness to tolerate a softer near-term economic picture, as the price for a better balanced and more private sector-led economy in the medium term. We can see DXY settling sub-100 on a 3mth+ horizon.

EUR/USD is of course in the midst of a dramatic and what is likely a prolonged bullish reset. At current levels EUR is pricing in all the upside positives and runs some risk of profit taking in the wake of the constitutional debt-brake vote Tuesday. EUR/USD likely washed about a 1.0750-1.0950 range for now, but can trade into 1.11-1.12 multi week.

A clean and persistent USD/JPY downside continues to unfold. BoJ officials would be understandably unnerved by tariffs and trade disruption, but so far are sounding surprisingly confident and upbeat about the outlook. More importantly, another brisk pay gain at this year's Shunto wage negotiations will likely have the BoJ upping price/wage projections. A hawkish hold from the BoJ is likely this week and we can see them hiking a couple times this year on these wage outcomes. JPY-bullish atmospherics can also form in coming weeks around the potential for the GPIF (USD2trn AUM) to cut foreign bond allocations at their 5-year strategic asset allocation review in April. A weak JPY has also singled out by the Trump Administration, which can act as a cap on USD/JPY. The bottom line is that USD/JPY can extend further still, sellers likely into and around 150.00, though a rebound to this area is looking less likely by the day.- RF

NZD - NZD/USD remains contained by an expanding three-month old range, bounded approximately by 0.5600 and 0.5800, with upside potential during the week ahead. If 0.5800 gave way, we’d be targeting the 0.5850-0.5950 area.

The US dollar has lost its lustre, markets becoming increasingly concerned with the adverse economic effects of the Trump administration’s policies on trade and other areas. In turn, the chances of rate cuts from the Fed this year have risen, with June seen as the likely month for a resumption of the easing cycle.

Meanwhile, NZD-supportive factors, such as extreme short speculative NZD/USD positioning and an arguably fully priced RBNZ easing cycle, remain intact.

The medium term outlook remains unclear, with considerable uncertainty regarding which US policies will be implemented and how they will affect the US economy.

Some of the NZD crosses which had experienced significant falls this year, such as NZD/EUR and NZD/GBP (making five-year and ten-year lows, respectively), are looking quite stretched and could rebound during the week ahead. NZD/AUD has looked more constructive over the past month and could extend to 0.9150, helped by NZ-AU yield spreads.- IS

Rates

US Rates- After trading a 4.15-4.35% range, 10y yields closed around 6bps higher on the week at 4.31%. We see that level as broadly mid-range, which is probably not surprising since there are arguments supporting moves in either direction including near term growth concerns and safe haven demand on the one hand versus medium term tariff-related inflation on the other. It’s the same at the short end, where policy expectations are shifting between 2-3 rate cuts factored-in by year end. Westpac now expects 2 cuts, so current pricing is not significantly different to our view.

For this week, with a government shutdown less likely, the focus will be on the updated Fed dot plot along with the ongoing recalibrating of European debt under the prospects of much larger spending initiatives. Should the dot plot reveal a sharp uptick in core PCE expectations and a revision lower in the GDP forecast, then the “stagflation” narrative will be reinforced, although Powell may wish to play down that possibility in the current political environment. The market will also focus on any upward revision to the long-term Fed funds projection in the context of the debate around “r-star”.

Outright: We remain neutral at current levels but would be tactical buyers on “dips” toward 4.5%, with an expectation that a relatively volatile range-trade within the envelop of the last two months’ price action, continues. While we suspect that we have seen the 10yr yield low (4.10%) for now, it is difficult to speculate on what could dramatically reverse recent trends. With the tariff war only just getting started, the focus will remain on the growth impacts, while there will remain a “wait and see”’ approach taken to inflation risks.

Curve: We expect the 2-10yr curve to remain in positive territory, with some scope to bull flatten on rallies in the near term. Any safe haven buying would support that as well. At some stage, however, the market narrative will likely shift back to the potential for stagflation, which would further steepen the curve, but there is little evidence on the inflation front just yet to shift the market narrative in that direction.

10yr Spread to Bund: European bonds remain under pressure and we expect the recent significant underperformance versus USTs to extend itself in coming months. The spread is now at 145bps and it is clear that the world-changing evets of the past few weeks will see the spread collapse even further over time. On the assumption that the Bundestag passes the constitutional changes necessary to accelerate Bund issuance, a move toward 0bp cannot be ruled out, especially now that Merz has gained agreement for the German spending package from the Greens. Nothing is as yet guaranteed, however, and we would be square at current levels as a result.

AU Rates- This week’s main domestic risk events include the monthly labour data and a speech by RBA Chief Economist Hunter. We would see the risk rewards around the labour data to be more skewed toward a downside surprise, while the market will be keen to understand the RBA’s updated messaging around February’s “hawkish cut”.

Even so, we would not expect either risk event to dramatically shift valuations.

As we have been articulating for some time, we expect to maintain the current RBA risk reward profile and associated price action through to the Q1 CPI release in April. The market continues to ascribe around a 75- 80% chance of another cut being delivered at the May meeting and more than one further cut beyond that in 2025. While not too different from our own house view, that pricing is as much a reflection of the rapidly changing global backdrop as it is a response to domestic drivers. And that is not likely to chance anytime soon.

Outright: Medium term, we would expect price action to remain volatile, with a greater than usual day-to-day dependence on UST outcomes. We maintain a preference to buy on dips and taking profits on rallies. We have been calling a 3yr futures 1 month range of 96.05 to 96.30 and for 10yr futures to remain within the 95.40 to 95.70 range of the past months. We are now back at the middle of those ranges and so would be neutral at current levels and after previously viewing the “weak” side of the range as skewed toward a significant US-led bullish impulse, we are less confident of that at present.

Curve: The curve has moved to its steepest level this year and the question is whether it will begin to attract attention from yield seekers. Given the global backdrop, along with ongoing supply fears domestically, which will gain greater focus over the week as we approach the Federal Budget, the curve will stay steep to reflect the risks. We await entry levels to re-stablish flatteners, either outright or on a spread basis, but now is not the time.

Swap Spreads: AU swap EFPs keep pushing to new narrow levels and we continue to expect the recent trend to slowly continue. Supply concerns remain the largest driver and that remains well in focus given the budget and the upcoming Federal election. Our 10yr EFP target in coming weeks would be around the -15bp level.

Semi Spreads: Friday’s FY26 GST relativities update has gained more headlines than is often the case, but that is largely a function of politics than it representing a major surprise on the fundamental or state fiscal front. In short, it saw Victoria gaining $3.7bn more in grants than the previous year, and Queensland receiving $1.2bn less. While the drivers behind these outcomes - Queensland’s coal royalty boost and Victoria’s population growth - were already known, now that the relativities have been revealed, it will contribute to the narrative that Queensland has ongoing challenges which Victoria’s difficulties are gaining some (small) support. That has already been reflected in some small QTC outperformance. Beyond that though, there’s a lot of other parameter and policy shifts in the upcoming Commonwealth and state budgets that will have a larger impact than this GST announcement.

10yr Spread to UST: We continue to recommend fading these widening impulses at opportunity but we are cautious about adding much risk in the current environment. Geo-political risks and unresolved tariff uncertainties are not conducive to the low-volatility, risk-on environment that would support AU outperformance. We suspect AU bonds will have to look extremely cheap before new risk is added in size. That suggests a push to the 20-25bp level would be a necessary precursor to demand.

NZ Rates: The NZ 2yr swap rate remains stuck inside a two-month range of 3.33%-3.65%. Eventually, we expect a break higher, given the easing cycle is fully priced: 25bp cuts in April and May, and a final one by August, matching the RBNZ’s fairly explicit guidance. Adding to case for upside risk is the large pipeline of mortgages due for refixing in H2.

The abrupt and surprising resignation of RBNZ Governor Orr means the April meeting, while still expected to deliver the 25bp cut, will be watched very closely for any subtle shift in guidance.

The 2-10yr swap curve steepened slightly further last week, to a four year high of 78bp, driven by higher US yields, but flattened to 69bp on Friday following a UST rally. We had earlier flagged that offshore yields pose risks to our recent flattener trade (rationale: to pre-empt the next tightening cycle, entered 7 March at 73bp, targeting 30bp or lower, with a tight trailling stop at 80bp).

NZGB i-spreads widened last week amid a climate of global risk aversion and possible lightening of risk positions, but were calmer by Friday. We are watching the 2035 for any further increase above 50bp (currently 49bp, recent low 40bp, record high 65bp), with a view to entering i-spread narrowers given benchmark index lengthening at end-March, a spike in reinvestment cash in April, and strong NZGBs tender performance this year. Multi-week, we are watching for any announcement regarding the 2032 tap syndication. Medium term, we expect NZGB i-spreads to narrow if swap rates rise in anticipation of the next tightening cycle.

We continue to watch for entry levels into medium-term NZGB-ACGB wideners. The 10yr spread (5/35 vs 6/35) is currently at +22bp, threatening to break above the +5bp to +25bp range of the past three months. We have been waiting for a pullback to the +5bp area, but would also consider a widener upon a break higher.– IS

Funding, basis, and liability management.

The continued gyrations on tariffs and thus markets are making any level of certainty in markets very challenging. The latest iteration sees yields lower again across the term structure. For regular readers, we have been reticent hedgers, waiting for a shift lower in the term rates structure. Our proxy for borrowers has to use the 1-year forward 3-year IRS rate, where we have warmed to the idea of hedging this week, noting in Tuesday’s Antipodean Wrap that levels of floating/fixed curves are notably inverted, though well off the levels seen in late 2024. The target for us is that if this rates structure was able to mid at 3.5%, we would be strong advocates for an increased hedge ratio, noting that such a level would reflect a spread for the forward IRS at around 25bp over the expected terminal cash rate. The 3.7% level has proved a barrier in recent months, but with the clear impetus for a lower yield structure in global debt markets on increased uncertainty, we think this can be breached.

Friday’s Wrap had updated thoughts and a chart on the FX/OIS basis market in A$. There has been a move lower in the 1-month tenor to -2bp from the flat to slightly positive level it has traded. That doesn't necessarily indicate tightness in funding markets. But, since Wednesday, it has jumped around 6bp to be just under 4bp level. Further out the curve, the 3 and 6-month tenors sit around the same levels, but a degree of slope remains on the curve.

Short dated (front break) BBSW/SOFR edged a little less negative too and is now at -3.25bp. Term Xccy basis is a little higher, though note that the 10-year tenor where QTC’s Semi deal is set to come, remains below the levels seen in Feb. There are several Kangaroo deals in the market to price today or into early this week, albeit in shorter dates, that bring small receive side interest to the market.

The large drawdown in global equity markets this month takes pressure off the Australian super funds hedging requirements, as we look towards the end of the month. The AUD spot and crosses are relatively stable, so hedges based off returns (or over hedged portfolios) are more likely to be unwound. This probably means the 5y5y Xccy level, or indeed other parts of the curve don’t get the usual dynamic applied over the coming fortnight. This means less RHS FX flow into month end.

BOB spreads, which have dropped all year, seem to have found a base and are a little higher this month. Without any obvious trigger, perhaps a base was found at that low level and hedgers moved in. If there is to be any widening of credit spreads from here, the low levels in BOB are worth a thought for hedgers. -MW

Commodities

Crude:

We still see a clear path to Brent in the $60s though in the near term, that path could be blocked by the Trump administration being “willing to apply maximum pressure on both sides” i.e. Iran and Russia. Last week saw another round of US sanctions on “service providers that facilitate Iran’s crude oil trade” including a Singapore based company that facilitated a ship-to-ship transfer in December last year. The US also let a licence covering payments for energy to a handful of Russian banks expire at midnight on Wednesday last week. So that maximum pressure campaign is being applied and with Chevron winding down as waivers for operations in Venezuela expire in April, we would not discount the possibility that we see a pop higher in crude prices. However, OPEC released its MOMR last week and confirmed that Kazakhstan is getting ahead of the April OPEC+ production increase, with its production surging by 198kbpd to be at least 300kbpd above its target as the Tengiz expansion project started up. The IEA’s Oil Market Report was out last week too, noting that “new US tariffs, combined with escalating retaliatory measures, tilted macro risks to the downside” and “recent oil demand data have underwhelmed”. Thus, we remain of the view that prices will head lower and eventually reach the mid $60s, though a near term bounce is possible given Iran/ Russia risks.

Metals:

Copper keeps on showing signs of a potential squeeze higher with calls for $10,000 continuing last week. However, for us to be convinced that a copper squeeze is really coming, we would need to see Comex overall copper open interest rising strongly versus seasonal patterns and deliveries into warehouses the same. But that’s not really happening at the moment. Hence our scepticism here. In addition, First Quantum announced it would halt arbitration against Panama, paving the way for renewed negotiations over a possible restart of the Cobre Panama mine. The mine was closed by the Panamanian government in December 2023 with the mine accounting for about 1.5% of global copper production at the time. The mine closure was arguably a key factor behind the May 2024 squeeze all the way above $11,000. So a reopening of Cobre Panama, even though it will take many months to start production, should add to the idea that the copper market is well supplied, especially given that section 232 tariffs are unlikely to be announced until November given previous report timetables.

Meanwhile, aluminium is also probing the $2,700 level though the impact of tariffs there is being played via the delivery premiums. Buyers in the physical market usually pay the LME aluminium price plus a premium which typically covers taxes, transport and handling costs. The Mid-West duty paid aluminium premium has surged 75% since the end of 2024 and remains above $900mt. To fully price in a 25% tariff plus transport costs etc it may have to rise another circa 25%. Meanwhile the market is clearly expecting aluminium to be diverted to Europe where the duty-paid physical premium has dropped 35% so far this year to sub $250. That means the spread between the landed price of aluminium in the US and Europe has more than tripled from an average of $200 over the last 5yrs to $675, and it can certainly widen further now that tariffs are in place and not going away any time soon.

Iron Ore:

We remain of the view there is a strong cap in place in the $105/110 region for iron ore and that prices will head lower in time. However, we are yet to get any confirmation of the detail of NDRC rationalisation directives for 2025 hence we are likely to continue to be well supported above $100 until we get greater clarity. There were rumours that the NDRC would release details of the rationalisation plan Saturday however officials from China’s Cabinet, the finance ministry and other Government Departments will hold a press conference later today around measures to support household consumption, so the report may be released after that? Meanwhile, both Vietnam and South Korea have already launched trade protection action against Chinese steel. Taiwan has also launched an anti-dumping probe, India has recommended broad tariffs on steel imports and Brazil is complaining more loudly as countries rush to protect their own industries from diverted foreign steel that was being sold into the US being dumped into their local markets. The volume of Chinese steel caught up in anti-dumping cases stood at a huge 30mt at the end of February. None of this is good for iron ore prices in our view. – RR

Gold:

Macro perspectives:

Gold has tested $3000/oz sooner than expected. We assumed already widespread retail and institutional sponsorship and a moderating short squeeze on US physical bullion might have left the metal in a longer consolidation window, before the next leg up. But structural long term appetite is evidently not sated. From here setbacks into $2955 should hold and sustained trade >$3000 seems more likely than not in coming weeks.

By now the macro case for gold is well understood: Trump global trade disruption risks, threats against EM countries that are looking to diversify away from the USD, once scarcely believable US-territorial stories/claims that could at some point develop into more acute geopolitical tensions, i.e. Gaza, Panama and Greenland. All of this adds up to a very decent safeguard premium for gold, pricing it substantially above levels justified by US real rates. $3000/oz+ and beyond looks inevitable at some point, but we expect progress to be marked by setbacks and heightened volatility.

Sector perspectives:

Expanding official appetite for gold is well known and its increasingly fanning beyond national sovereigns, capturing municipalities. Some US states have recently passed bills to increase investment in gold and silver bullion, with North Dakota next with a new bill being published which would require investment of at least 1% of holdings in the state treasury. Against that Belgium is reportedly considering selling part of its gold reserves to fund its defence budget. These reserves stand at more than €20bn.-RF

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