FX and rates biases for April business - Westpac

Analysts at Westpac offered a summary for their bias for the next month.

Key Quotes:

"FX

• Larger than expected) USD unwinding of gains from 2H’16 seen as corrective;
• USD strength should return and test range extremes in GBP, EUR and JPY;
• AUD and NZD to struggle to retest recent highs before retracing against USD;
• Extent of AUD and NZD retracements will be critical for broader directional bias;
• AUD/NZD also retracing (1.07-1.08 area) before another upswing develops.

Rates

• Standard corrections (i.e. pullbacks for lower yields) have developed;
• Yields are approaching perceived entry levels in anticipation of further legs higher;
• Risk of a deeper flush (of some 10-12bps) needs to be acknowledged;
• The next dynamic move should be a concerted drive higher in yields;
• AU/US 10yr spread set to narrow towards 10-15bps;
• Both AU and US curves are approaching ideal levels for re-entering steepeners."