CHINA: 10-Yr Back Above 1.80% on RRR Cut Delay

The USD/JPY range today has been 153.51 - 154.52 in the Asia-Pac session, it is currently trading around 153.55, -0.55%. USD/JPY could not bounce at all and was back under pressure from the open and has remained so all through our session. The price action on Monday in response to the election outcome showed it was mostly priced in, and we have seen some “buy the rumour, sell the fact” play out. I thought we would see better demand back toward the 155.00 area initially but this move in US yields is causing the Yen shorts some angst. This price action does look messy but I still believe dips back toward the 149-152 will probably provide solid support again should we see it, until then it looks like we chop around albeit with a heavy tone as we await tonight's US labour data which will directly impact that move in US yields. On the day, the first resistance is back towards 154.75-155.15 and then the 155.80-156.20 area as the market pares back its USD longs and looks for another base to from from which to move higher again.

• “Deutsche Bank strategists said they’re no longer bearish on the yen after PM Sanae Takaichi’s election victory.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 156.50($1.16b), 156.60($550mm). Upcoming Close Strikes : 158.50($1.57b Feb 13), 159.00($1.91b Feb 13),160.00($3.06b Feb 13) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 154 Points

Fig 1 : US 10-Year Yield Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

ACGBs (YM +3.0 & XM +6.5) are stronger.

• MNI: The Reserve Bank of Australia’s 25bp February hike to 3.85% reflected stronger global growth, looser financial conditions and firmer private demand relative to supply, Deputy Governor Andrew Hauser said.
• There has no cash US tsys dealings in today's Asia-Pac session, with Japan out on holiday.
• All focus turns to today's US employment data. Monthly payroll growth is currently expected at 70k in January for a slight acceleration from the 50k in December and 56k in November.
• Cash ACGBs are 2-5bps richer, with the 3/10 curve flatter.  
• The latest ACGB April 2037 auction attracted solid demand, with the weighted average yield printing 0.68bps through prevailing mid-yields.
• Moreover, the cover ratio jumped sharply to 4.1429x from 3.4933x at the previous auction. The AOFM also plans to sell A$1000mn of the 2.50% 21 May 2030 bond on Friday.
• The bills strip has bull-flattened, with pricing flat to +3 across contracts.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 15% for March to 93% by June and 146% by December 2026.  
• Tomorrow, the local calendar will see Consumer Inflation Expectation data alongside the RBA’s Senate Testimony and RBA Hunter’s Speech.

Bloomberg Finance LP

The AUD/USD has had a range today of 0.7067 - 0.7128 in the Asia- Pac session, it is currently trading around 0.7125. The AUD took another leg up across the board as the market reacted to Hauser saying they “will do what's necessary to return inflation to target”. The USD is again back under pressure and the move lower in yields overnight is just adding to its headwinds, the AUD remains a favourite vehicle to express a long against it. The AUD has been outperforming across the board as leveraged funds continue to add to their longs as further hikes are potentially priced in. On the day, the first support is back toward the 0.7040–0.7070 area, and then the 0.6950 area. The bulls will be looking for dips to remain supported in order to break above the pivotal 0.7100-0.7200 area. A sustained break above here targets 0.7600-0.7800 first and then 0.8000-0.8200.

• "HAUSER: WILL DO WHAT'S NECESSARY TO RETURN INFLATION TO TARGET" - BBG
• MNI BRIEF: Stronger Demand Drove Hike - RBA's Hauser. The RBA’s 25bp February hike to 3.85% reflected stronger global growth, looser financial conditions and firmer private demand relative to supply. The reason policy turned around in February is because the facts changed,” he said, referring to last week’s decision.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.7010(AUD560m). Upcoming Close Strikes : 0.6800(AUD1.55b Feb 13), 0.6850(AUD933m Feb 12) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 80 Points

Fig 1: AUD/USD spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P