Trading Update: USD Outperforms, Gold and the S&P500 Eyes New Highs

The AUD was the clear focus for Aus-based clients yesterday, and while the swaps market was spot on with its high expectations for the 25bp cut, I would also argue that the volatility markets absolutely nailed the call for the RBA meeting to be a low-vol affair - it was. In the wake of RBA Gov Bullock’s presser, in which she essentially detailed the 25bp cut as an insurance move to unwind the hike seen back in November 2023, the intraday tape of the AUDUSD showed a real battle from market players to push the spot rate higher or lower – subsequently, the price action has been a bit of a chop fest.

Interestingly, despite a defiant view from Gov Bullock that the cash rate will be anchored close to the current rate of 4.1% AU swaps still imply a strong chance of a further 25bp cut in May and one more by December.

Traders will now look to the Aussie Wage Price Index (11:30 AEDT) as an intraday risk – Wages are an important consideration for the RBA, but I suspect the outcome shouldn’t lead to sizeable intraday vol in the AUD through trade today.

Eyes on the RBNZ Meeting - a 50bp cut fully priced

AUDUSD aside, traders have engaged with AUDNZD longs, given its long-held role as the cleanest expression of central bank policy and interest rate differentials. NZDUSD has also seen higher volumes than would usually be the case, with the selling picking up on the break of Friday’s lows of 0.5716. The RBNZ meeting will be a risk event to manage through trade today, with the bank almost certainly set to cut rates by 50bp – again, the move in the NZD today will likely come from the RBNZ’s guidance and appetite for further easing and how it reconciles to the additional 63bp of rate cuts implied by December.

Trading Nvidia Into Earnings

We’ve seen good activity in US tech, semis and software equity names, with Intel finding solid buying flows through the session, on reports that it could be broken into different entities - TSMC and Broadcom potentially waiting in the wings to acquire respective assets within the business. Meta has finally succumbed to profit-taking, and after 20 straight days of gains the metaphorical elastic band that was well and truly primed to snap back, has done so – however, given the market loves the Meta story and it's investment thesis, one suspects there will be many hoping for a bit more of a clean out of positioning before getting set again in longs.

Nvidia gets close attention from clients, where those focused primarily on price action would have seen the gap lower (on 27 Jan) in response to the Deepseek scare being filled on the day. Gaps are there to be filled, but the rejection and the selling pressure seen after trading to $143.44 will not have enthused the bulls. Earnings matter and will start to dominate the thought-process of US equity traders, with the market gearing up for its Q425 earnings release and guidance for Q126 next Wednesday – I would argue that the market is now comfortable with Nvidia easily beating its prior guidance for $37.5b in sales for the quarter, as they are on expectation for management to guide to $42b in sales for Q126 – this level of conviction for a sales beat was perhaps not the case 2 weeks ago, with the rally in the 23% rally in the share price (since 3 Feb) reflecting that new found confidence for reporting.

While there are certainly challenges which Nvidia have to navigate, I feel the market is looking at the investment case through a more optimistic and positive lens again, but with expectations on sales having shifted higher, I would feel more comfortable adding to longs on a closing break of $141.88.

New Closing Highs for the S&P500

A big-picture overview of the session suggests traders were better-adjusting positioning than really seeing any material change in their tactical cross-asset directional views. The USD – the weak link last week – was the notable performer in G10 FX, following UST yields higher, with the Treasury curve bear steepening, with 10s +8bp to 4.55%. The S&P500 saw incredibly choppy intraday conditions, tracking a tight range of 6123 to 6110 for the most part, before a quick rip lower took the cash index to 6100 – buyers have since stepped back in with the S&P500 cash index closing +0.2% on the day, and at a record closing high.

S&P500 energy names worked best on the day, partly helped by some switching out of Meta and Netflix and backed by crude rising 1.4% in response to news that OPEC+ will push back yet again on its output curbs in April. Gold has seen an out-and-out trend day, with volumes in the futures building on the rally through US trade - despite the strength in the USD and both US nominal and real Treasury yields higher on the day, gold targets yet another all-time new high.

Turning to Asia where our calls suggest the HK50 could also succumb to profit taking and eyed 1% lower for the cash open. After such a run selling on open won’t necessarily surprise, and we see clear buying exhaustion in the trend – that said there is a change in sentiment towards China's asset markets underway, and this rally is fully justified, and where pullbacks should be shallow.

The ASX200 looks to open on a flat note, and we prepare for earnings from Santos, James Hardie and Magellan – with ASX energy names set to start the day recouping the losses seen yesterday, we also look to see the full reaction from interest rate sensitive plays, given we’ve had time to fully digest Bullock's presser and the reaction in the swaps/rates market. Looking ahead, aside from earnings, the Aussie WPI, and the RBNZ meeting, we will also see the UK CPI and the FOMC minutes.

Good luck to all.