NZD: Asia Wrap - NZD/USD Drifting On A 0.59 Handle

The Asia-Pac USD/JPY range has been 147.56 - 147.89, Asia is currently trading around 147.65, -0.05%. The pair has traded sideways with little direction, consolidating its recent move higher. The USD/JPY relentless march higher has been pretty telling, challenging a market positioned the wrong way. Price is now consolidating some of those recent gains, dips back towards 146.00 should now find support first up. The US CPI tonight will be closely watched by the bond market and consequently will also be important for USD/JPY.

• JAPAN Long Dated Yield Surge Continues, With Election Driving Uncertain Outlook: As Japan's upper house elections approach (held July 20), focus remains on the relentless rise in longer-dated JGB yields. The 30yr is up a further +4bps today, last around 3.21%. Concerns around fiscal slippage is a factor in the JGB sell-off.
• Reuters : "Barclays calculates that the rise in 30yr yields currently factors in about a three percentage-point cut to Japan's 10% consumption tax rate. "Even if the ruling parties retain their majority in the upper house, they would still be unable to pass budget bills, including the upcoming supplementary budget, without the cooperation of the opposition parties."
•  "JAPAN, EU TO ISSUE JOINT STATEMENT ON ECONOMIC ALLIANCE:YOMIURI" - BBG
• "JAPAN RULING BLOC MAY STRUGGLE FOR MAJORITY: MAINICHI ANALYSIS" - BBG
• USD/JPY has lost all downside momentum for now and is back in its wider 142.00 - 148.00 range. The Market is long JPY and should the USD manage to continue to correct higher the risk is a move back to the top end of the range to further challenge the conviction of the shorts.
• Options : Close significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 146.50($1.4b July 16).
• CFTC data shows Asset managers reduced their JPY longs slightly +89331, while leveraged funds have almost squared their newly built JPY longs +5224.
• Data/Event : US CPI

Fig 1 : USD/JPY Spot Daily Chart

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

The AUD/USD has had a range of 0.6539 - 0.6555 in the Asia- Pac session, it is currently trading around 0.6545, +0.01%. Risk got a boost this morning as Nvidia posted on a blog that they had received assurances from the US Government that it would be granted licenses to resume sales of its H20 to China. AUD/USD initially tried to bounce on this but has not followed through, it trades in the middle of its recent 0.6500 - 0.6600 range awaiting US CPI tonight.

• Ronald Mizez(AFR) on LinkedIn: The Commonwealth Bank has urged Jim Chalmers to consider major tax reform to revive productivity, including slashing income taxes, overhauling the GST, capping superannuation concessions and introducing wealth taxes.
• The July Westpac consumer confidence index rose 0.6%m/m, putting the index at 93.1 (from 92.6 in June). The edge higher comes despite last week's surprise RBA on hold decision. Sentiment is up from recent lows, but still below recent highs, leaving us within recent ranges.
• The AUD/USD continues to hold above its support around 0.6500, looks like it's back to the 0.6500 - 0.6600 range and it should now take its cues from the USD. Watching to see if the market can build on this outperformance and break above 0.6600.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6560(AUD631m), 0.6495(AUD611m),. Upcoming Close Strikes : 0.6575(AUD609m July 16), 0.6480(AUD586m July18), 0.6700(AUD611m July 16).
• CFTC Data shows Asset managers added to their shorts slightly -38252, the Leveraged community pared back their shorts to -19061.
• AUD/JPY - Today's range 96.55 - 96.86, it is trading currently around 96.65, -0.20%.   The pair has had a good move above 96.00 and this time looks to be building momentum to extend higher. The market has been caught wrong-footed in both legs of this pair and price action suggests a potential move back to 99.00/100.00. Dips back to 95.50/96.00 should now be supported.

Fig 1: AUD/USD spot Hourly Chart

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

The TYU5 range has been 110-20+ to 110-25 during the Asia-Pacific session. It last changed hands at 110-23, down 0-01 from the previous close. 

• The US 2-year yield is trading around 3.898%.
• The US 10-year yield is trading around 4.433%.
• The 10-year yield is again testing the 4.40/45% pivot within its wider 4.10% - 4.65% range. The market is clearly worried about inflation and the CPI this week will be a critical input into the market's thinking. A sustained close back above the 4.45% area could see more longs pared back, above here and the focus will turn back to the 4.65% area.
• Lance Roberts(RIA) - “Tuesday’s CPI and Wednesday’s PPI reports will be very helpful in appreciating how tariffs are impacting inflation. Thus far, there has been a negligible effect. However, the June reports will fully capture a period when the tariffs were being enforced. If data continues to be on the weak side, we suspect the Fed will become more dovish. However, higher-than-expected inflation data may allow them to continue to postpone rate cuts.”
• MNI US OUTLOOK/OPINION: Analysts See Core CPI On Cusp Of 0.2% or 0.3% M/M In June. Ahead of tomorrow’s US CPI release, we note that the broad Bloomberg consensus looks for both core and headline CPI inflation at 0.3% M/M in June although unrounded estimates suggest a risk of rounding lower.