AUD: Asia Wrap - AUD/USD Drifts Higher In Quiet Session

The AUD/USD has had a range of 0.6503 - 0.6529 in the Asia- Pac session, it is currently trading around 0.6510, +0.02%. The pair moved lower after the Q2 CPI print but found demand back towards the 0.6500 area and could not follow through. First support seen around 0.6450 then the more important 0.6350 area. The market's focus will now turn to the FOMC tomorrow morning.

• AUSTRALIA DATA: Core Inflation Moderating Towards Band Mid-Point. Australia’s Q2 trimmed mean CPI printed only 0.1pp above the RBA’s May Q2 forecast, which with the economy developing broadly in line with expectations since the July meeting should allow it to ease 25bp on August 12 when it also releases its updated outlook. Trimmed mean rose 0.6% q/q to be up 2.7% y/y, a moderation from Q1’s 0.7% & 2.9%.
• RBA: VIEW: Westpac Expects Cuts At Next Four SoMP Meetings. Westpac believes two consecutive prints at seasonally-adjusted 0.6-0.7% q/q show that underlying inflation is within the band and so the RBA can continue easing in August. It believes that will be followed by 25bp cuts in November, February and May – all Statement on Monetary Policy meetings that include updated staff forecasts.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6500(AUD469m), 0.6550(AUD1.01b), 0.6600(AUD923m). Upcoming Close Strikes : 0.6600(AUD1.38b July 31), 0.6465(AUD1.01b July31), 0.6465(AUD1.01b Aug 4) - BBG
• CFTC Data shows Asset managers added a decent clip to their shorts -53959(Last -38267), the Leveraged community reduced their own shorts to -12010(Last -20048).
• AUD/JPY - Asia-Pac range 96.31 - 96.75, Asia is trading around 96.45. The pair could not hold above 97.00 on Monday and consolidated overnight. The support between 95.00 - 96.00 held very well last week and the pair is looking to regain its momentum for a move higher. The event-risk coming up this week though could provide some short-term headwinds.

Fig 1: AUD/USD spot Daily Chart

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

Tsunami warnings continue across Asia Pac and to the US in the aftermath of the powerful earthquake near Russia, earlier today. 

• Rtrs notes: "A magnitude 8.8 earthquake struck off Russia's Far Eastern Kamchatka Peninsula on Wednesday, damaging buildings and generating a tsunami of up to 4 metres (13 feet) that prompted warnings and evacuations stretching across the Pacific Ocean."
• From Bloomberg: "...triggering tsunami alerts from Japan to Canada, California, Hawaii, and as far away as Indonesia and New Zealand."
• Tsunami's have already reportedly hit parts of Japan, but could be expected to continue for the next day or so.
• Japan PM Ishiba stated: "It’s possible that the second, third and fourth waves of tsunami could be much bigger” than the first, he said, asking people to remain vigilant until the warning is lifted."
• Headlines also crossed: ""*TSUNAMI WARNING IN EFFECT FOR CALIFORNIA: NWS NTWC" - BBG, ", along with "USCG OCEANIA: ISSUED ORDER FOR ALL COMMERCIAL VESSELS TO EVACUATE ALL COMMERCIAL HARBORS IN HAWAII, ALL HARBORS ARE CLOSED TO INCOMING VESSEL TRAFFIC. - [RTRS]"
• China also noted: "*CHINA ALERTS TSUNAMI MAY HAVE 'DISASTROUS IMPACT' ON ITS COAST" - BBG"
• Market reaction has been fairly limited so far, with JPY gain a little ground on the initial headlines, but there hasn't been any follow through, as the market awaits more details. The 2011 earthquake off the coast of Japan triggered a sharp bout of yen strength.
• Via NYT: "The quake is tied for the sixth-largest on record, according to the U.S. Geological Survey. It is the most powerful since the 2011 earthquake off Japan’s east coast, that triggered the Fukushima tsunami and nuclear disaster."  

The TYU5 range has been 111-10+ to 111-13 during the Asia-Pacific session. It last changed hands at 111-11+, unchanged from the previous close. 

• The US 2-year yield has edged higher trading around 3.87%.
• The US 10-year yield has shifted higher trading around 4.326%, up 0.01 from its close.
• The 10-year yield has moved back towards its pivot within the wider range 4.10% - 4.65%, decent supply was seen around 4.30/35% first up. A decent bounce was seen off this support but the move has failed to follow through above 4.40% for now. The Data this week should hopefully provide more clarity going forward. A Clear break of the support opens a move to the bottom end of the range.
• Renaissance Macro Research on X: ”Trade, inventory investment and public sector spending & investment adding 2.2ppts in Q2, according to Atlanta Fed. Thus, private domestic demand is running under 1% in real terms.”
• Andreas Steno Larsen on X: “The US has got the softest inflation surprises on Earth. That should impact the FOMC tomorrow.”
• Jeff Weniger on X: “The phone bill. Cereal. Gas. Coffee. A used car for work. These are things people still buy even when money is a big problem. The 12-month smoothed inflation rate on essentials is 1.8%. The last time the Fed Funds rate exceeded "essentials inflation" by this much was Q3/2007.” See Fig.1 below.
• Data/Events:   MBA Mortgage Applications, ADP, US Treasury Quarterly refunding, GDP, Pending Home Sales, FOMC

Fig 1: Fed Funds vs "Essential Purchase" Inflation

Source: MNI/@JeffWeniger