AUD: Asia Wrap - AUD/USD Benefits From USD/Asia Selling
The AUD/USD has had a range of 0.6408 - 0.6438 in the Asia- Pac session, it is currently trading around 0.6435. The USD found some good demand overnight as some positions were pared back heading into the US long weekend. This price action has not followed into our session as fresh selling in USD/ASIA has seen the USD struggle across the board today, Asia's major stock markets are staring at another strong week of inflows with almost $2bn recorded to yesterday.
- Bloomberg - “Donald Trump’s tax bill faces changes and delays in the Senate after narrowly passing the House. Majority Leader John Thune said senators have questions about tax permanence and are engaged in a “very active discussion” over Medicaid.”
- “The path lower for dollar-yuan is being endorsed by a trickle down of PBOC daily fixings and its directional relationship with the forwards curve.”(BBG)
- The AUD has been quietly bid for most of the Asian session benefitting from fresh selling across the board in USD/ASIA.
- The AUD/USD is looking comfortable in a 0.6350 - 0.6550 range. The AUD continues to hold up pretty well against the USD so If you want to express a short it looks best to do that in the crosses for now.
- Expect buyers to be around on dips while the support in the AUD holds, a close back below 0.6300/50 would start to challenge the newly formed uptrend.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6375(AUD683m May 23),0.6475(AUD500m May 23) 0.6550(AUD529m May 23), Upcoming Strikes : 0.6510(AUD1.4b May 27)
AUD/JPY - Today's range 92.16 - 92.48, it is trading currently around 92.30. Decent demand again seen towards the 92.00 area as it holds overnight. A sustained close back below 91.50/92.00 is needed to turn the focus back towards the lows again. With stocks looking like they could have more to go in this retracement it could provide further headwinds for this pair.
Fig 1: AUD/JPY spot Daily Chart
Source: MNI - Market News/Bloomberg
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US TSYS: Asia Wrap - Yields Drift Lower In The Long End
TYM5 has traded higher with a range of 110-20 to 111-00+ during the Asia-Pacific session. It last changed hands at Heading 110-29, up 0.04 from the previous close.
- The US 10-year yield is drifting lower, dealing around 4.34%, down from its open around 4.40%
- The US 2-year yield is unchanged, dealing around 3.81%
- Risk has reversed higher as Trump makes a U-turn saying he won’t fire Powell and made comments that seemed to soften his stance towards China.
- Block Curve flattener flows : SELL 8200 of USM5 traded at 108-06, post-time 01:25:20 BST (DV01 $353,017). BUY 2800 of USM5 traded at 114-22, post-time 01:25:20 BST (DV01 $353,492).
- 10-year Yields, having bounced off their support around the 4.25 area, yields are consolidating with the range looking something like 4.25/4.50% for now.
Data/Events : US S&P Global Services & Manufacturing PMI, New Home sales
AUSSIE BONDS: Holding A Twist-Flattener, Light Local Calendar
ACGBs (YM -6.0 & XM +1.5) are dealing mixed on a data light Sydney session, with the short-end under pressure as markets re-assess tariff-tied risks to global trade and the Trump Admin's efforts to meddling with the Federal Reserve's independent policy making.
- Risk-on sentiment extended into today’s Asia-Pacific session after US President Trump stated that he had no intention of firing Fed Chair Powell (which has been a cause of concern recently and around the outlook for Fed Independence).
- Trump also stated that the final tariff number for China wouldn't be near the current 145%. He also expressed optimism around trade deals with lots of countries and spoke of the large investment agreements reached for flows into the US.
- Cash US tsys have twist-flattened in today's Asia-Pac session, with yields 2bps higher to 8bps lower.
- Cash ACGBs are 6bps cheaper to 1bps richer with the AU-US 10-year yield differential at -10bps.
- Swap rates are flat to 5bps higher, with the 3s10s curve flatter.
- The bills strip is cheaper with pricing -4 to -9.
- RBA-dated OIS pricing is 2-10bps firmer across meetings today. A 50bp rate cut in May is given a 14% probability, with a cumulative 114bps of easing priced by year-end (based on an effective cash rate of 4.09%).
JGBS: Follows US Tsys Into A Twist-Flattener At Lunch
At the Tokyo lunch break, JGB futures are weaker, -32 compared to the settlement levels, but above session lows.
- Cash US tsys have twist-flattened in today’s Asia-Pac session, with yields 2bps higher to 8bps lower. This comes with risk-on sentiment extending into today’s Asia-Pac session after US President Trump stated that he had no intention of firing Fed Chair Powell (which has been a cause of concern recently and around the outlook for Fed Independence). Such fears were a further weight on broader US asset related sentiment.
- Trump also stated that the final tariff number for China wouldn't be near the current 145%. He also expressed optimism around trade deals with lots of countries and spoke of the large investment agreements reached for flows into the US.
- The cash JGB curve has twist-flattened, pivoting at the 20-year, with yields 4.5bps higher to 5bps lower. The benchmark 10-year yield is 3.6bps higher at 1.351% versus the cycle high of 1.596%.
- The swaps curve has also twist-flattened, with rates 3bps higher to 4bps lower.
- Today, the local calendar has been light, with Jibun Bank PMIs as the highlight. The Tertiary Industry Index is due later. Tomorrow will see PPI Services.
