AUSSIE BONDS: ACGB Jun-54 Auction Results

The Westpac lead indicator for June fell 0.03% m/m following an upwardly-revised 0.05% rise. The 6-month rate, which leads detrended growth by 3 to 9 months, is hovering just above zero signalling that growth is likely to return to around trend towards year end. Westpac believes that sluggish growth and the Q2 CPI outcome on July 30 will enable the RBA to cut 25bp on August 12 but it will maintain a “gradual easing cycle”.

• The 6m/6m annualised change in the lead indicator printed at 0.03% in June down from 0.11%.
• Weaker commodity prices in AUD, consumer confidence, hours worked drove the moderation from December’s +0.33%. However, the ASX, lower rates and US IP have been supportive.
• Westpac is forecasting GDP growth of 1.7% in 2025 up only slightly from 2024’s 1.3%. 

Australia Westpac lead indicator vs real GDP %

This morning has seen US futures open slightly higher as President Trump announced a trade deal with Japan. The response is pretty muted considering how important this deal was seen, ESU5 +0.10%, NQU5 -0.05%. The AUD trades with little direction in the crosses, within ranges and looking for a catalyst to provide a clearer picture.

• EUR/AUD - Overnight range 1.7881 - 1.7974, Asia is currently trading around 1.7910. The pair pulled back overnight, EUR/AUD looks to be trying to build a base from which to test back above 1.8000 again.
• GBP/AUD - Overnight range 2.0618 - 2.0723, Asia is trading around 2.0630. The pair drifted lower after being capped towards the 2.0800 area. This pair is also now back within its wider 2.0450 - 2.1050 range, and lacking any clear direction.
• AUD/JPY - Overnight range 95.64 - 96.38, Asia is trading around 96.00. The pair continued to trade heavily overnight. The support has held though between 95.00 - 96.00 where demand has materialised first up, and the trade deal between the US and Japan should provide it with some tailwinds.
• AUD/NZD -  Overnight range 1.0917 - 1.0958, the cross is dealing in Asia around 1.0920. The cross moved higher in response to the NZ CPI. Dips back to 1.0850/1.0900 should continue to find support as the pair tries to build momentum to move higher.

Fig 1: AUD/JPY spot 120min Chart

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

Japan equities are rallying in the first part of Wednesday trade, as details filter out around the trade agreement with the US. Notably headlines have crossed that countries agreed to lower the auto tariff to 15% (down from the 25% threat). This is aiding Japan automakers in the first part of trade. 

• The Topix is up around 2.0% currently, slightly off best levels. Earlier the index tested above the 2900 level, which is fresh highs back to mid 2024. The auto and transport sub index for the Topix is up close to 6.5%, also off best levels.
• Key auto names are all up strongly, with Toyota up +10% at one stage.
• The 15% tariff rate on autos is being seen positively relative to the earlier 25% threat from US President Trump. Chief Japan Negotiator Akazawa posted to X earlier, "Mission Complete". PM Ishiba declined to comment on the negotiated details and added that he would scrutinize the trade details before deciding on his future as PM.
• The broader reciprocal tariff rate of 15% is lower than most other countries have seen, although we await details in terms of greater US access to Japan auto and agricultural markets, which Trump hinted at in his post (along with the $550bn in investment from Japan into the US). Trump also stated that Japan is forming a joint venture with the US in Alaska around LNG.