AUD: A$ Through Overnight Highs

Headline flow has been muted so far, providing little in the way of meaningful catalysts for core FI space.

• T-Notes ground lower from the off before finding support at 118-08+ and ticking away from lows. TYU2 last seen -0-03 at 118-10+, Eurodollars run unch. to -1.0 tick through the reds. Cash U.S. Tsy yields sit 0.8-1.3bp higher across the curve. Wholesale inventories & 10-Year Tsy auction headline the local docket today.
• JGB futures hold a tight range, last trade at 149.66, 15 ticks above previous settlement. Cash JGB curve has bull flattened a tad. The BoJ will buy 1-25 Year JGBs during today's round of Rinban operations. Elsewhere, the final reading of Q1 GDP & April BoP current account balance provoked no reaction in the space, focus turns to Eco Watchers Survey.
• Cash ACGB yields retreated as cash trading re-opened in Sydney, taking cue from their U.S. peers. They are partly unwinding yesterday's RBA-inspired gains. The yield curve runs steeper, sits lower. The steepening impetus has filtered through into futures contracts, with YM last +6.5 & XM +2.5. Bills trade 2-11 ticks higher through the reds. The AOFM will auction A$800mn of ACGB Sep '26 at the top of the hour.

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 0.50% 21 September 2026 Bond, issue #TB164. The line was last sold on 29 April 2022 for A$1.0bn. The sale drew an average yield of 2.9040%, at a high yield of 2.9100% and was covered 4.6350x. There were 40 bidders, 10 of which were successful and 5 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 9.2%.

• Results due at 0200BST/1100AEST.

Demand for USD/JPY emerged in early Tokyo trade Tuesday and intensified as BoJ Gov Kuroda reiterated his ultra-dovish policy mantra, with the pair printing a fresh two-decade high at Y133.00. The rate managed to remain afloat through the rest of the day despite a pullback in U.S. Tsy yields (see fig. 1).

• A decline in the VIX index to 24%, the lowest level since Apr 22, may have served as an offset to lower U.S. Tsy yields (carry trades are supported by lower equity vol). But if U.S. Tsy yields keep correcting, we may well see USD/JPY losing ground.
• In addition, the yen remained pressured via other currency pairs as the BoJ remains the lone dove among major central banks. A hawkish RBA rate decision pushed AUD/JPY above Y96.00, while EUR/JPY soared above Y142.00 ahead of this week's ECB meet.
• USD/JPY 1-month risk reversal extended gains after rising above par for the first time since May 11 on Monday, as bullish sentiment among option traders kept strengthening.
• Final quarterly GDP figures and monthly BoP current account balance will hit the wires shortly, with Eco Watchers Survey due later in the day.
• Yen weakness persists this morning, with USD/JPY trading +19 pips at Y132.78 as EUR/JPY rips through yesterday's best levels. Should USD/JPY break above round figure/ Apr 4, 2002 high of Y133.00/11, bulls could set their sights on Apr 1, 2002 high of Y133.84. Bears keep an eye on the 50-DMA, which intersects at Y127.96.

Fig. 1: USD/JPY vs. U.S. 10-Year Tsy Yield (%)

Source: MNI - Market News/Bloomberg