AUSSIE BONDS: AU-US 10Y Diff Near Top Of Range

The BBDXY range overnight was 1198.47 - 1202.74, Asia is currently trading around 1198, -0.05%. The USD trades very heavy as the moves in US yields start to take their toll. The headwinds for the USD seem to be compounding and a look below 1195 feels almost inevitable. A sustained break below 1197/1195 is needed to regain the momentum lower and retest the year's lows. Should the USD start another leg lower it would have big implications for FX and potentially see a lot of the recent ranges in G10 broken.

• Lance Roberts(RIA) - “Today we will also get the annual revisions to the BLS employment report. That adjustment will likely show that over the last 12-months somewhere between 550,000 to 800,000 fewer jobs were created than originally reported based on the QCEW report. The bond market responded as expected. Bond yields fell as investors realized the disinflationary impact of slower employment and wage growth would increase recession risk. If the revisions to employment show a substantially weaker than expected outcome, bond yields will likely fall further.”
• MNI INTERVIEW: US Job Market At Potential Pivot Point - Shin. A raft of soft U.S. jobs data adds weight to Fed Chair Jerome Powell's view that labor market risks have increased, though central bank officials need more time to determine whether employment has hit a pivot point, Yongseok Shin, a St. Louis Fed research fellow and economist at Washington University in St. Louis, told MNI.
• Bloomberg - Dollar Bears Undeterred by Heightened Political Risk Elsewhere. Despite no shortage of rapid political developments around the globe (both Japan and France will soon have new prime ministers), the dollar’s post-payrolls decline remains firmly intact.”
• Data/Events : NFIB Small Business Optimism, Prelim. Benchmark Payrolls Revision

Fig 1: BBDXY Daily Chart

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

Westpac consumer sentiment fell 3.1% m/m to 95.4 in September after August’s robust +5.7% m/m to 98.5. It remains in pessimistic territory but above the 2025 average helped by 75bp of monetary easing and lower inflation. RBA Deputy Governor Hauser had talked about “scarring” from contracting real incomes continuing to weigh on sentiment. There had not been an RBA meeting since the last confidence print. This month’s decline was driven by increased concerns about the economic outlook and fears of unemployment.

Australia  Westpac consumer confidence

Source: MNI - Market News/LSEG

• Westpac continues to expect the RBA to be on hold on 30 September but cut 25bp in November and twice more next year.
• Unemployment expectations rose 4.6% to 131.4, the highest in a year and just under the series average. It could be signalling an uptrend in the unemployment rate. Thus it isn’t surprising that the “time to buy a major item” fell 3.4%, although people’s financial situation continued to improve. 

Australia unemployment expectations

Source: MNI - Market News/LSEG/ABS

• The economic outlook for the year ahead fell 8.9% after rising 4.7% in August, which Westpac believes may have been driven by the pickup in July CPI inflation.
• In terms of news recall, the general feeling was that it was “mixed” rather than “negative” with inflation at its lowest recall level for four years, according to Westpac. Reports on “budget and taxation” had the highest recall and was marginally more negative than in June.
• 69% expect mortgage rates to be the same or lower over the coming year down from 72% in August.
• House price expectations increased further by 2.6% to a 15-year high, while buying sentiment fell 1.7%.

• The PBOC issued CNY247bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY255.7bn.
• Net liquidity withdraws CNY8.7bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.43%, from prior close of 1.45%.
• The China overnight interbank repo rate is at 1.41%, from the prior close of 1.30%.
• The China 7-day interbank repo rate is at 1.48%, from the prior close of 1.48%.