AUD: Asia Wrap - AUD/USD Consolidates In A Quiet Session
The AUD/USD has had a range of 0.6563 - 0.6579 in the Asia- Pac session, it is currently trading around 0.6570, -0.05%. The pair has traded sideways in a very subdued session. US Equity futures have drifted off their overnight highs in Asia, ESU5 -0.22%, NQU5 -0.20%. With US yields surging higher and staying there the USD’s inability to hold onto any gains is a worrying sign for the currency, especially when positioning is supposedly all the same way and at extreme levels. Look for some consolidation again in the AUD/USD as the pair continues to build a base from which to move higher.
- AUSTRALIA DATA - Household Spending Firms In May, Y/Y Trend Improving Modestly: Australian May Household spending data was stronger than forecast, rising 0.9%m/m, against a 0.5% forecast. In y/y terms we printed 4.2%, against an expected gain of 3.5% and prior 3.8% outcome. The April outcome was revised to flat in m/m terms, after initially being reported as a 0.1% gain.
- Today's print contrasts with the earlier retail sales this week, which came in below market forecasts (+0.2%m/m, versus +0.5% forecast). More weight should be given to today's May household spending outcome though, as it will replace the retail sales print from the end of this month
- "REUTERS POLL-RESERVE BANK OF AUSTRALIA TO CUT CASH RATE TO 3.60% ON JULY 8, SAID 31 OF 37 ECONOMISTS; SIX SAID NO CHANGE" - RTRS
- The AUD/USD is breaking through the top of its recent range as the pressure on the USD increases. First support is seen back towards the 0.6500 area.
- The AUD needs a sustained break above 0.6550/0.6600 to potentially start building momentum for an extended move higher, a close back above 0.6600 and the focus would turn back to 0.6900/0.7000.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6600(AUD2.59b), 0.6500(AUD 1.38b). Upcoming Close Strikes : 0.6600(AUD884m July 7), 0.6375(AUD722m July 8)
- AUD/JPY - Today's range 94.84 - 95.37, it is trading currently around 94.85, -0.42%. The pair broke above its recent highs around 95.00 overnight and with risk sentiment turning positive it could be turning its focus back towards the 96.00 area.
Fig 1: AUD/JPY spot Hourly Chart
Source: MNI - Market News/Bloomberg Finance L.P
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AUD: Asia Wrap - Tries Lower On GDP Miss But Demand Found Again
The AUD/USD has had a range of 0.6454 - 0.6480 in the Asia- Pac session, it is currently trading around 0.6460. The AUD tried lower on the GDP missing lower, but the bids that were around overnight again provided support towards the 0.6450 area.
- AUSTRALIA DATA: GDP Details Signal Gradual Recovery Still In Place. While Q1 GDP was weaker than expected and slower than Q4, it was impacted by extreme weather events in the quarter which impacted exports and domestic demand. Thus there is likely to be some positive payback in Q2 and so a reaction by the RBA to the weakness at its July 8 decision is not assured. Given special factors, it is likely to watch the more timely monthly data closely for signs of a Q2 recovery..
- The AUD is basically back to where it started the day, we may have to wait for NFP on Friday to get some clearer direction.
- Price is back in the 0.6350 - 0.6550 range, a sustained break above 0.6550 is needed for the move higher to accelerate. The dips look to be well supported while above 0.6350.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6450(AUD625m), 0.6455(AUD449m). Upcoming Close Strikes : 0.6300(AUD 1.47b June 6)
AUD/JPY - Today's range 92.83 - 93.17, it is trading currently around 93.000. Range looks 92.00 - 94.00 for now, a sustained break sub 91.50/92.00 will bring focus back to towards the lows again.
Fig 1: AUD/USD spot Daily Chart
Source: MNI - Market News/Bloomberg
US TSYS: Viewpoint - Is Bessent Increasing Treasury Buybacks ?
Zerohedge wrote an article highlighting the recent increase in Treasury buybacks and asks is this Scott Bessent stepping in ? https://www.zerohedge.com/markets/its-treasury-vs-fed-fed-sidelined-bessent-unleashes-record-10-billion-bond-buyback
- “Scott Besent revealed that he has breakfast with Powell every week, and also said that if the Fed does nothing, he might take matters in his own hands, and since the Treasury has a "big toolkit" one of the things it could do is "up the Treasury buybacks"
- “Six weeks later, with the Fed sidelined and unwilling to do anything to ease the plight of US treasuries which continue to trade at dangerous levels - the 30Y is flirting with a 5% level - it appears this is what Bessent has done.”
- “At 2pm on Tuesday afternoon, the Treasury announced the results of its latest Treasury buyback operation. While the operation itself was not remarkable - the Treasury had been holding these more or less weekly since April 2024 - the size of it was: at $10 billion, this was the largest Treasury buyback operation in history.”
- “And while the maturity range of the cusips accepted for buyback was of low duration, in the interval between July 15, 2025 and May 31, 2027, we are about to see sizable increases in the total buyback size of longer duration treasuries.”
- “Sure enough, tomorrow at 2pm, the Treasury will complete a buyback focusing on Treasuries maturing in the 2036-2045 interval, i.e., 10-20 year paper, and the maximum amount to be redeemed will be $2 billion, up 100% from the last such buyback on May 6, when the maximum amount to be redeemed was $1 billion.”
“In fact, the last time there was a treasury buyback anywhere close to today's amount was in mid/late April when Treasuries were tumbling and when someone had to step in and cushion their fall.”
Fig 1 : Treasury Debt Buyback
Source: Zerohedge
US TSYS: Asia Wrap - Yields In The Long-End A Little Lower
The TYU5 range has been 110-15 to 110-18+ during the Asia-Pacific session. It last changed hands at 110-17, up 0-02 from the previous close.
- The US 2-year yield is unchanged, dealing around 3.947%.
- The US 10-year yield has edged lower, trading around 4.446%, down 0.1 from its close.
- Jens Nordvig on X: “It is rare for the Fed to set rates at a level similar to nominal GDP growth. Normally, there is a large gap, with nominal policy rates well below nominal growth. The last times we were here were in the early 2000s and around 2006-2007. Something to think about.”(Graph Below)
- MNI US: Senate GOP Conference To Meet Weds To Discuss Accelerated Megabill Schedule: Laura Weiss at Punchbowl News reports on X that Senate Republicans will hold an all-conference meeting to discuss the 'One Big Beautiful' reconciliation bill on Wednesday afternoon.
- The 10-year yield continues to find good support around 4.35/40%. Yields need to hold above this area to continue to build for a move higher.
Data/Events: ADP, S&P Services PMI, ISM Services Index, Fed Beige Book
Fig 1: Fed Funds Effective rate vs Nominal GDP Growth
Source - Jens Nordvig/Bloomberg
