FOREX: Asia-Pac USD: BBDXY Drifts Sideways Below 1220

Aussie is underperforming pressured by weaker China/HK equities and US-China tensions over shipping duties due to be implemented Tuesday. China has not only retaliated with a fee on US ships docking at its ports but is also introducing restrictions on Chinese shipping companies’ US divisions. Risk appetite remains very sensitive to US-China developments. AUDUSD breached 0.6500 and is currently 0.5% lower at 0.6482, close to the intraday trough at 0.6481. The USD index is only slightly lower.

• US-China working-level trade talks occurred on Monday and China reiterated today its right to control rare earth exports and that the US should negotiate.
• Kiwi is also impacted by the pullback in risk but less than Aussie leaving AUDNZD down 0.2% to 1.1358, close to the intraday low. It reached a high of 1.1395 following weak NZ consumption data and the RBNZ announcing an easing of LVR requirements. The share of loans with an LVR above 80% will be increased to 25% from 1 December.
• AUDJPY is down 0.8% to 98.436 in the weaker risk environment. It reached 99.485 earlier. AUDEUR is 0.6% lower at 0.5595 and AUDGBP -0.6% to 0.4856.
• The ASX is up 0.1%, Hang Seng down 0.2% and S&P e-mini is flat. Oil prices are now flat with WTI around $59.53/bbl. Copper is down 0.5% and iron ore is around $104/t.
• Later Fed Chair Powell speaks on the economic outlook and monetary policy. The Fed’s Bowman, Waller and Collins, ECB’s Machado, Cipollone and Donnery, and BoE’s Bailey and Taylor also appear. US September NFIB small business optimism prints. On Wednesday, RBA Assistant Governor Hunter speaks and Westpac’s lead indicator for September is released.

Risk off is emerging China headlines around sanctioning US units of Hanwha Ocean and a broader announcement on charging US ships entering China ports. This comes after risk appetite improved on Monday as China looked to play down the impact of its rare earth export curbs, while US officials (including US President Trump) struck a more conciliatory tone around US-China relations (after Trump's Friday tariff threat hit market sentiment). 

• Via Xinhua - "China's Ministry of Transport on Tuesday revealed a detailed document regarding measures to charge special port fees on ships owned or operated by U.S. enterprises, organizations and individuals." It adds: "These detailed measures were unveiled following the ministry's announcement on Oct. 10 that China will charge special port fees on U.S. ships starting Oct. 14 -- in response to the U.S. move to impose additional port fees on Chinese ships after a Section 301 investigation".
• This points to some tit for tat escalation in the shipping space.
• US eminis are down in the red, off 0.4%, while Bitcoin is down 2% for the session.   USD/JPY is back under 152.00 (against earlier highs of 152.61). USD/CNH is back above 7.1400. 

• As treasuries began trading in the Asia trading day, yields across the curve opened 1-3bps higher before taking back some of the early moves.
• The US 2-Yr traded up at 3.515%, but rallied back to again test a near term support of  3.50% that it has been unable to hold below.
• The US 5-Yr is back to flat at 3.63% having been +2bps higher in the morning session.  
• The US 10-Yr is up +1bps to 4.04%, having opened at 4.06%.  Last week it failed to test 4.00% and looks likely to remain in the 4.00% - 4.20% range for now, seeking a fresh catalyst to break out.  With FED speakers in coming days and the FEDs Powell's economic address at the NABE meeting, treasury traders will be looking for signals for monetary policy that could challenge this current range.  
• The US 30-Yr is up +2bps at 4.64% just off the Tuesday morning high of 4.65%.  
• Futures are edging lower too as TYZ5 is has not traded too far from where it started the day and is currently +01 at 113-06