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Pushes To Multi-Week Highs, As Iron Ore Rebounds Helps The A$

AUDNZD

AUD/NZD continues to track higher, building a base above 1.1100, last trading at 1.1130. This is highs for the pair going back to mid-June (just under 1.1170). As the chart below highlights there is a modest wedge between the AUD/NZD cross and the 2yr AU-NZ swap spread. To be sure, the swap spread is moving in AUD's favor but the last time AUD/NZD was at these levels, the 2yr spread was 10-15bps firmer in AUD's favor. On a government bond spread basis it is a similar story.

  • The other support for the AUD is higher iron ore prices, which is helping drive outperformance against other G10 FX as well. The active future in Singapore is up a further 3.3% today, for a cumulative +10.6% gain in the past 3 sessions. We are now back to $110/tonne, versus last week's lows of $97-$98.
  • China property stocks continue to find support, with the sub-index up another 3% so far today, after yesterday's 1.29% gain. This follows the recent announcement around a proposed property fund in China which would support the ailing property sector. The fund size could reportedly be as large as 300bn yuan ($44bn), with the aim is getting stalled construction projects going again. We may find out more post this week's Politburo meeting in China.

Fig 1: AUD/NZD & AU-NZ 2yr Swap Spread

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AUD/NZD continues to track higher, building a base above 1.1100, last trading at 1.1130. This is highs for the pair going back to mid-June (just under 1.1170). As the chart below highlights there is a modest wedge between the AUD/NZD cross and the 2yr AU-NZ swap spread. To be sure, the swap spread is moving in AUD's favor but the last time AUD/NZD was at these levels, the 2yr spread was 10-15bps firmer in AUD's favor. On a government bond spread basis it is a similar story.

  • The other support for the AUD is higher iron ore prices, which is helping drive outperformance against other G10 FX as well. The active future in Singapore is up a further 3.3% today, for a cumulative +10.6% gain in the past 3 sessions. We are now back to $110/tonne, versus last week's lows of $97-$98.
  • China property stocks continue to find support, with the sub-index up another 3% so far today, after yesterday's 1.29% gain. This follows the recent announcement around a proposed property fund in China which would support the ailing property sector. The fund size could reportedly be as large as 300bn yuan ($44bn), with the aim is getting stalled construction projects going again. We may find out more post this week's Politburo meeting in China.

Fig 1: AUD/NZD & AU-NZ 2yr Swap Spread

Keep reading...Show less