JPY: Asia Wrap - USD/JPY Pauses Towards 151.00, Officials Begin Jawboning
The Asia-Pac USD/JPY range has been 150.55 - 150.92, Asia is currently trading around 150.60, -0.10%. The JPY tried to rally on the inflation outlook being raised by the BOJ, but when Ueda spoke later he offered no clear idea of when the next rate hike would be. This saw the dip lower in USD/JPY be short-lived and its momentum higher resumed, the USD continued to grind higher adding to the pairs tailwinds. Price has moved quickly to now be testing its pivotal 151.00/152.00 area, I would expect some supply here first up but a sustained break above here would be a real worry for an institutional market that is still long JPY. The BOJ would also not be happy if this area does break as it would signal a potential move back to the area they have been defending 155-160.
- "JAPAN LABOUR MINISTRY COUNCIL EYES ABOUT 6% HIKE NATIONWIDE IN FY2025 AVERAGE MINIMUM WAGES, BIGGEST RISE EVER, KYODO SAYS - [RTRS]"
- (Bloomberg) - “Japan’s Finance Minister said he’s worried by movements in the yen, which weakened to levels last seen in March following dovish messaging on interest rates from the Bank Of Japan. “The government is deeply concerned about trends in the currency market, including speculative movements” Kato told reporters.”
- Earlier data showed mixed June labor market conditions. The unemployment rate was steady at 2.5%. This was in line with market forecasts. The unemployment rate has been steady at 2.5% since March of this year. This is just up from cycle lows of 2.4%. However, the job to applicant ratio rose fell to 1.22 from 1.24 prior, which was also below the 1.25 consensus expectation. This is the lowest job-to-applicant ratio since 2022.
- Options : Close significant option expiries for NY cut, based on DTCC data: 150.00($1.16b), 147.00($1.62b).Upcoming Close Strikes : 150.00($1.04b Aug 4) - BBG.
- CFTC data shows last week Asset managers surprisingly added slightly to their JPY longs +72326( Last +71610), while leveraged funds have slightly reduced their newly built short JPY position -11571(Last -12606).
Fig 1 : USD/JPY Spot Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
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AUD: Asia Wrap - Disappointing Retail Data Finds Bids Around 0.6560
The AUD/USD has had a range of 0.6565 - 0.6583 in the Asia- Pac session, it is currently trading around 0.6583. The pair tested lower on the back of a lower than expected retail sale sprint, bids emerged back around 0.6560 and the pair has erased all of its losses going into London. US Equity futures have drifted higher in Asia, ESU5 +0.30%, NQU5 +0.35%. The market will be watching for signs of this move building upward momentum for a more significant move higher, could the catalyst be NFP on Thursday ?
- Australian retail sales rose a modest 0.2%m/m in May, after a revised flat outcome in April (originally reported as a -0.1% dip). The market consensus for the May outcome was a +0.5% rise. Other data showed May building approvals up 3.2%m/m, which was slightly below the 4.0% forecast. The April fall was revised to -4.1%m/m.
- (Bloomberg) -- Weak retail sales confirm our concerns about Australia’s consumers, who are keeping their wallets shut despite the Reserve Bank starting rate cuts in February and May. So far, there’s little sign the moves are reviving spending, and a stronger rebound likely hinges on additional easing.
- 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 0.6500.
- 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: 0.6550(AUD654m). Upcoming Close Strikes : 0.6600(AUD2.55bm July4).
- AUD/JPY - Today's range 94.30 - 94.53, it is trading currently around 94.50, +0.1%. Choppy price action as the pair establishes a range between 92.00 - 96.00. Momentum higher seems to be stalling, a break sub 0.9350 would be needed to see the focus turn lower once more.
Fig 1: AUD/USD spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
US TSYS: Asia Wrap - Yields Drift Higher
The TYU5 range has been 111-27 to 111-30+ during the Asia-Pacific session. It last changed hands at 111-27, down 0-00+ from the previous close.
- The US 2-year yield has drifted higher trading around 3.776%.
- The US 10-year yield has edged higher trading around 4.25%, up 0.01 from its close.
- The 10-year yield has seen a bounce after a very strong move lower with some paring back of longs ahead of NFP. Any bounce back to the 4.35% area would offer buyers a decent level to add again.
- (Bloomberg) - “Jerome Powell repeated that the Fed probably would have cut rates further this year absent Trump’s expanded use of tariffs, although he didn’t rule out easing at July’s meeting.”
- “The $3.3 trillion US tax and spending bill passed the Senate after JD Vance cast the tie-breaking vote. The House is expected to vote on the package Wednesday, but passage isn’t guaranteed.”(BBG)
- Data/Events: MBA Mortgage Applications, ADP, Challenger Job Cuts
Fig 1: 10-Year US Yield Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
BONDS: NZ-US 10Y Differential In the Top Half Of This Year’s Range
NZGBs are richer today, with benchmark yields 2bps lower. The NZGB 10-year has slightly outperformed US 10-year since yesterday’s close, with the NZ-US yield differentials 2bps tighter on the day.
- At +25bps, the NZ-US 10-year differential is in the top half of the -20bp to +40bps range seen this year.
- A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past 18 months indicates the 10-year yield differential is around 7bps below its estimated fair value of +32bps.
- Notably, the regression error has fluctuated within a range of ±15bps over the past year, highlighting some variability in the relationship.
- The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.
Figure 1: NZ-US 10-Year Yield Differential
Source: Bloomberg Finance LP / MNI
