AUD: A$ Following Global Drivers
A$ correlations have remained elevated over the past week. This is evident across yield spreads, particularly at the short end, as well as with global commodities and equity trends.
- The table below plots correlations for the past week and month across these traditional key macro drivers.
- The yield spread correlation has likely remained elevated given US moves post the CPI print/Fed commentary this week. Note next week contains some important AU event risks, RBA minutes are out Tuesday, followed by Q2 wages on Wednesday. Then on Thursday is jobs data for July. The wages/jobs mix arguably carries the most domestic risk that can shift the AU yield outlook.
- The correlation with global commodities remains strong, as it was last week, but less so iron ore, where prices have been more range bound, while the A$ has continued to rally this past week.
- The currency is also back in lockstep with global equity sentiment, see the chart below, after a brief divergence through early August.
Table 1: AUD/USD Correlations
| 1wk | 1mth | |
| 2yr yield differential | 0.94 | 0.31 |
| 5yr yield differential | 0.76 | 0.16 |
| 10yr yield differential | 0.46 | 0.01 |
| Global commodity prices | 0.85 | 0.86 |
| Iron ore | 0.18 | 0.63 |
| Global equities | 0.90 | 0.85 |
| US VIX index | -0.83 | -0.83 |
Source: MNI - Market News/Bloomberg
Fig 1: AUD/USD & Global Equities
Source: MNI/Market News/Bloomberg
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EUROZONE ISSUANCE: EGB Supply For W/C July 11, 2022 (1/2)
Germany and Italy are all still due to sell bonds this week, while Greece, the EU, the Netherlands and Germany have already come to the market. We look for estimated gross nominal issuance of E24.5bln, down from the E24.2bln sold last week.
- Greece kicked off issuance for the week on Monday by selling E500mln of the 10-year 1.75% Jun-32 GGB (ISIN: GR0124038721) in an operation “to provide additional liquidity on this maturity point of the GGB curve.”
- Yesterday, the EU held its first of five syndications of H2. It sold E5bln of a new long 7-year 1.625% Dec-29 NGEU bond and tapped the 20-year 0.45% Jul-41 NGEU bond for E3bln.
- The Netherlands held an auction yesterday to sell E1.985bln of the on-the-run 10-year 0.50% Jul-32 DSL (ISIN: NL0015000RP1), against a E1.5-2.5bln target range.
- Germany also held an auction yesterday, selling E5.5bln of the 0.20% Jun-24 Schatz (ISIN: DE0001104883). E4.513bln was allotted.
EUROZONE T-BILL ISSUANCE: W/C July 11, 2022
Ireland is still due to sell bills this week while Germany, France, Spain, Italy, and Belgium have already come to the market this week. We estimate issuance through first round operations to be E22.3bln, down from the E26.2bln sold last week.
- Germany kicked off issuance on Monday morning selling E3bln of the 6-month Jan 18, 2023 bubill (E2.408bln allotted).
- Monday afternoon France sold E6.092bln of 13/22/40/48-week BTFs, the top of the target range: E3.096bln of the new 13-week Oct 12, 2022 BTF, E1.198bln of the 22-week Dec 14, 2022 BTF, E0.600bln of the 40-week Apr 19, 2023 BTF and E1.198bln of the 48-week Jun 14, 2023 BTF.
- Yesterday morning, Spain sold E1.83bln of 3/9-month letras against a E1.5-2.5bln target: E355mln 3-month Oct 7, 2022 letras and E1.478bln 9-month Apr 14, 2023 letras.
- Italy then raised E7bln by selling the new 12-month Jul 14, 2023 BOT.
- Also yesterday, Belgium sold E3.005bln of 3/12-month TCs against a E2.8-3.2bln target range: E905mln of the 3-month Nov 10, 2022 TC and E2.10bln of the new 12-month Jul 13, 2022 TC.
- Ireland will conclude bill issuance for the week tomorrow with E1bln of the 3-month Oct 24, 2022 IRTB on offer.
AUD: AUD/USD Backs Away From 0.6780, Jobs Data Eyed Tomorrow
AUD/USD has back away from overnight highs, just shy of 0.6780. We last tracked 0.6765. The currency has modestly outperformed on the day, aided by some AUD/NZD demand. Overall moves have been modest (AUD/USD close to a 40pip range), as the market awaits US CPI data this evening.
- The AUD/NZD got above 1.1060, but we are now back at 1.1045. AU yields are slightly firmer than NZ post the RBNZ, but spreads are comfortably away from recent highs. The AU-NZ 2yr swap is back at -57bps.
- Note NZ plans to tweak its covid related restrictions tomorrow, although the country isn't planning on going back to red settings, which are the harshest.
- Equity sentiment has generally been positive, although concentrated in tech related plays. AUD/JPY sits just under 92.70, +0.20% for the session.
- In the commodity space, iron ore has been steady between $106-$108/tonne. Onshore steel prices in China continue to track lower, likewise for coking coal. Copper couldn’t hold onto earlier gains and is back sub $327 (CMX).
- Tomorrow June employment figures are due. The market looks for +30k on jobs (+60.6k previously). The unemployment rate is expected to edge down to 3.8% from 3.9%, while the participation rate is forecast to remain steady at 66.7%.
