US TSYS: Asia Wrap - Yields Drift Lower

The NZD/USD had a range of 0.6011 - 0.6055 in the Asia-Pac session, going into the London open trading around 0.6015. The NZD has failed to hold onto its gains above 0.6050 and drifted lower all day. The move lower has been a reaction to weaker Chinese data and US Equity futures trading poorly in our session. The Bulls will be hoping demand can keep it on a 0.6000 handle to build for another attempt.

• China's May CAIXIN PMI contracted in May, surprising forecasters.  May's result of +48.3 was materially down from +50.4 in March and a surprise to market surveys predicting a rise to +50.7.
• NEW ZEALAND: Terms Of Trade Rises Again, Strong Export Volume Growth. While the Q1 merchandise terms of trade rose less than expected at 1.9% q/q, it was the fifth straight monthly increase after it was up 3.2% in Q4. Statistics NZ notes that the softer kiwi “contributed” to higher export and import prices. Export volumes rose solidly for the second straight quarter boosted by dairy products and should be a positive in Q1 GDP when it is released on June 19.
• The NZD is attempting to break out its recent range, the hawkish slant from the RBNZ last week only saw a slight paring back of short positions. Should the NZD sustain a clear break back above 0.6050 you could see some of these reduced even further.
• The support back towards 0.5850 has held very well, and while this continues to hold expect buyers to be around on dips. A clear break above 0.6050 could provide the spark for the next leg higher.
• CFTC Data showed Asset managers maintaining their shorts, while the leveraged community pared back only a little of the decent short they had initiated the week before.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6100(NZD375m). Upcoming Close Strikes : 0.5900(NZD401m June 4)

• AUD/NZD range for the session has been 1.0727 - 1.0770, currently trading 1.0755.  A top looks in place now just above 1.0900, the market will have been looking for a more dovish tone from the RBNZ last week and AUD/NZD could now see supply on bounces. The sell zone is back towards 1.0825/50 with the first target being around 1.0650.

  Fig 1: NZD/USD Spot Hourly Chart

  

  Source: MNI - Market News/Bloomberg

The AUD/USD has had a range of 0.6464 - 0.6500 in the Asia- Pac session, it is currently trading around 0.6465. The AUD has again failed towards the 0.6500 area, the move lower has been a reaction to weaker Chinese data and US Equity futures trading poorly in our session.

• China's May CAIXIN PMI contracted in May, surprising forecasters. May's result of +48.3 was materially down from +50.4 in March and a surprise to market surveys predicting a rise to +50.7.
• RBA: Board Wanted To Move “Predictably” In May, July Data & Event Dependent. The May meeting minutes confirmed that staying on hold, 25bp and 50bp rate cuts were discussed. It appears that not only is there considerable uncertainty regarding the outlook but that the Board prefers to remain cautious and move “predictably”, as a result it cut by the widely expected 25bp, which was also assumed in its updated staff projections
• The AUD has struggled to hold onto its overnight gains and has underperformed in the crosses as US Equity futures stay under pressure in the Asian session.
• Expect buyers to continue 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, a sustained break above 0.6550 and the move higher could begin to accelerate.
• Today's price action suggests the range of 0.9350 - 0.9550 is set to persist for a little longer.

• AUD/JPY - Today's range 92.49 - 92.86, it is trading currently around 92.55. 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 Hourly Chart

  

  Source: MNI - Market News/Bloomberg

The TYU5 range has been 110-16 to 110-20+ during the Asia-Pacific session. It last changed hands at 110-20, up 0-05 from the previous close.

• The US 2-year yield has drifted lower, dealing around 3.93%, down 0.01 from its close.
• The US 10-year yield has drifted lower, trading around 4.4316%, down 0.1 from its close.
• (Bloomberg) -  “Traders are buying into the stagflation narrative, with Monday’s economic reports setting the tone for a week that culminates in the May jobs report. Against that backdrop, the path of least resistance is a steeper yield curve.”
• “The Fed can proceed with rate cuts if uncertainty around trade policy is resolved, Austan Goolsbee said, adding that recent data showed “surprisingly little impact so far.” Lorie Logan said risks to inflation and employment are balanced, implying the central bank can remain patient.”(BBG)
• AFR - “JPMorgan chief executive Jamie Dimon on Friday night predicted that a crack in the bond market is “going to happen” - and it will scare the pants off everyone.”
• The 10-year has bounced nicely off its support around 4.35/40%. Yields need to hold above this area to continue to build for a move higher. 
• Data/Events : Factory Orders, Durable Goods Orders, JOLTS.