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Firmer On Tuesday, Midterms On Deck

AUSSIE 10-YEAR TECHS

(Z2) Primary Trend Direction Remains Down

AUSSIE 3-YEAR TECHS

(Z2) Sell-Rallies Theme Intact

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CAD, Antipodean FX Underperformance & Household Indebtedness

MARKET INSIGHT
  • AUD, NZD and CAD underperform most other majors today, making relatively little inroad into broader USD weakness despite oil gaining strongly in the case of CAD and AUD.
  • AUD weakness in particular stems from the dovish surprise from the RBA hiking 25bp vs the 50bp largely expected/priced, triggering a sizeable re-pricing lower of 2023 rate expectations, but that could start to be a sign of household indebtedness beginning to weigh on hiking expectations.
  • It’s notable that these three countries see some of the highest household debt levels in the G10, with Canada and NZ ~100% GDP and Australia closer to 120% GDP [chart 1], which as fixes from post-pandemic purchases begin to come up for refinancing could increasingly weigh on households.
  • Should a pivot away from the recent highs of terminal rates drive a wedge lower to Fed pricing, which is yet to be seen in 2Y2Y OIS [chart 2], it could increasingly weigh on these crosses.
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  • AUD, NZD and CAD underperform most other majors today, making relatively little inroad into broader USD weakness despite oil gaining strongly in the case of CAD and AUD.
  • AUD weakness in particular stems from the dovish surprise from the RBA hiking 25bp vs the 50bp largely expected/priced, triggering a sizeable re-pricing lower of 2023 rate expectations, but that could start to be a sign of household indebtedness beginning to weigh on hiking expectations.
  • It’s notable that these three countries see some of the highest household debt levels in the G10, with Canada and NZ ~100% GDP and Australia closer to 120% GDP [chart 1], which as fixes from post-pandemic purchases begin to come up for refinancing could increasingly weigh on households.
  • Should a pivot away from the recent highs of terminal rates drive a wedge lower to Fed pricing, which is yet to be seen in 2Y2Y OIS [chart 2], it could increasingly weigh on these crosses.