October 04, 2022 15:17 GMT
- 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.