Sharply Higher After Q4 CPI Undershoot, Focus Turns To FOMC Decision

ACGBs (YM +10.0 & XM +9.0) sit 6-7bps richer than pre-CPI data levels.

• ICYMI, Q4 CPI undershot market expectations printing +0.6% q/q (4.1% y/y) for Headline and +0.8% q/q (4.2% y/y) for Trimmed Mean versus expectations of +0.8% q/q and 4.3% y/y for Headline and +0.9% q/q and 4.3% y/y for Trimmed Mean.
• The moderation was driven by goods and tradeables though with services and non-tradeables both rising in line with Q3. The data is likely to mean that the RBA is on hold in February, dependent on revised staff projections, but maintains its tightening bias given the sticky nature of domestic price pressures.
• An extension of overnight strength in US tsys in today’s Asia-Pac session also likely assisted the local bid. Ahead of the FOMC decision later today, US tsys are 1-2bps richer across benchmarks.
• Cash ACGBs are 9-11bps richer on the day, with the AU-US 10-year yield differential 6bps tighter at +3bps.
• Swap rates are 9-10bps lower, with EFPs little changed.
• The bills strip has bull-flattened, with pricing +3 to +13.
• RBA-dated OIS pricing is 5-13bps softer for meetings beyond March, with a cumulative 56bps of easing priced by year-end.
• Tomorrow, the local calendar sees CoreLogic House Prices, Judo Bank PMI Mfg, Q4 Terms of Trade, Q4 NAB Business Confidence and Building Approvals data.