AUSSIE BONDS: 10y Futures Near Key Resistance, AU 3/10s Curve Flattest Since Apr

The AUD/USD has had a range of 0.6641 - 0.6662 in the Asia- Pac session, it is currently trading around 0.6660, +0.20%. US Equities traded sideways as the market turned its focus towards the FOMC this week and what the potential upcoming cutting cycle could look like. The AUD consolidates around 0.6650, trying to find the momentum it needs to accelerate above this pivotal area. Should the USD break and extend lower we could see the AUD gain momentum above 0.6650/0.6700 and potentially target levels back towards 0.6900/0.7000. The price action suggests dips will be supported for now as we await confirmation of this potential break higher, the first buy-zone is back towards the 0.6550 area.

• Bloomberg - “Aussie to Extend March Higher as Shorts Bail, Yuan Climbs. AUD/USD is pressing into a higher range, fueled by yuan strength, looming Fed cuts and leveraged shorts scrambling to cover. Net Aussie shorts are the smallest since November last year, and on the present course are likely to turn into longs with the FOMC to provide a dovish rate cut this week.” 
• MNI BRIEF: China's August Investment Slows To Five-year Low. China’s fixed-asset investment growth decelerated to 0.5% y/y in the Jan–Aug period from the previous 1.6%, marking the slowest pace since Aug 2020 and missing an expectation of 1.5%, National Bureau of Statistics data showed Monday.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6500(AUD309m). Upcoming Close Strikes : 0.6600(AUD794m Sept 18) - BBG
• CFTC Data last week shows Asset managers slightly increasing their shorts -68333(Last -66025), the Leveraged community pulled back the shorts they had just started to rebuild -5081(Last -11860).
• AUD/JPY - Asia-Pac range 98.06 - 98.27, Asia is trading around 98.20. The pair consolidated its gains on Friday night, turning the focus back towards the 99.00/100.00 area. Dips back towards 96.50/97.00 should be expected to be supported now first up.

Fig 1: AUD CFTC Data

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

The TYZ5 range has been 113-02 to 113-07 during the Asia-Pacific session. It last changed hands at 113-05+, down 0-03+ from the previous close. 

• 10-Year Yields found some supply around 4.00% and have retraced a little as the market looks towards the FOMC this week. The first buy-zone is now back towards the 4.20% area where I suspect decent demand should return initially. A sustained break through 4.00% is needed for the focus to then turn towards the 3.80% area.
• Alexander Stahel on X: “The market is now pricing in a fairly political Fed that’s going to overease. That’s the concept that seems the danger. Fed Funds at 4.375; market pricing in 3 for the long run projection. Anyway, 25bps this week seems a given. But we then need a machine gun of cuts.”
• RenMac on X: “Fed Should Go 50… But Likely Won’t – Neil Dutta”
• (Bloomberg) -- The Congressional Budget Office now expects higher inflation and unemployment this year and slower economic growth, after taking into account President Donald Trump’s tax law, tariffs and lower net immigration.
• Bob Elliott X: “Fed looks set to ignore a near 3% core PCE print as they transition to cutting.  While the Fed can ignore this reality, households can't. The continued price pressures are set to curtail their real spending ahead.”
• Data/Events: Empire Manufacturing

Fig 1: 10-Year US Yield 2H Chart

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