FOREX: AUD Crosses - Mixed Performance, AUD/CAD Leading The Move Higher
CFTC data out for last week shows both Asset Managers and Leveraged Funds added to their AUD short positions, given how poorly the USD is trading one would expect most of these shorts are being expressed in the crosses. The AUD performance in the crosses was mixed overnight bouncing against the CAD but it continues to underperform for now against the EUR and to a lesser extent the GBP.
- EUR/AUD - Overnight range 1.7886 - 1.7964, Asia is currently trading around 1.7940. The pair again found some supply back towards the 1.8000 area overnight, it has had a good run higher but how the AUD/USD trades through 0.6550/0.6600 will be key. First support seen back towards the 1.7800 area, a break above 1.8000 and the move could extend higher.
- GBP/AUD - Overnight range 2.0864 - 2.0928, Asia is trading around 2.0895. This pair continues to meet supply towards the multiple tops above 2.1000. A sustained break above 2.1050 is needed to see the move higher regain momentum, like EUR/AUD though a more positive risk backdrop and the AUD/USD potentially breaking higher could potentially see this pair back off and move towards the lower end of its 2.0500 -2.1050 range.
- AUD/JPY - Overnight range 93.97 - 94.56, Asia is trading around 94.45. 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.
- AUD/NZD - Overnight range 1.0766 - 1.0798, the cross is dealing in Asia around 1.0780. The cross is struggling to get any momentum for now. It looks to be in a 1.0750 - 1.0850 range for now as it awaits a catalyst to provide some direction.
Fig 1: AUD/CAD spot Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
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CHINA: Details of 3 and 6 month Reverse Repo Sales in June
- The PBOC sold CNY400bn of 3-month outright reverse repo in May.
- The PBOC sold CNY300bn of 6-month outright reverse repo in May.
- There will be CNY900bn of outright reverse repo maturities in May.
USD: Starts The Week Back Under Pressure, BBDXY Eyes The Lows Around 1200
The BBDXY range overnight was 1215.06 - 1218.30, Asia is currently trading around 1214. Asia opens under early pressure as trade friction between the US and China increases.
- (Politico) - “President Donald Trump said on Friday that he is doubling his tariff on steel to 50 percent, from 25 percent currently, to prevent billions of dollars worth of foreign steel from continuing to enter the United States.”
- U.S.-China Trade Truce Risks Falling Apart Over Rare-Earth Exports (WSJ): “A trade truce between the U.S. and China is at risk of falling apart, as China’s slow-walking on rare-earth exports fuels U.S. recriminations that China is reneging on the deal.”
- Bloomberg - “Scott Bessent said he’s confident the latest trade clash between Trump and Xi Jinping “will be ironed out” in a call “very soon.” He also told CBS’s Face the Nation the US “is never going to default” on its debt, while declining to say when the Treasury will run out of cash.”
- There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows.
- The market is still clearly focused on the “sell America” trade. What last week’s price action highlighted is the short-term market is all the same way so the frequency of sharp pullbacks will increase.
- The BBDXY rejected the 1125 area pretty strongly, the USD should continue to be met with supply should this 1225/30 area cap price. Focus will now turn back to the pivotal long-term support around the 1200 area.
Data/Events : Monday's highlights include the ISM Manufacturing survey and an appearance by Fed Chair Powell, with the June employment report looming at the end of next week.
Fig 1: BBDXY Weekly Chart
Source: MNI - Market News/Bloomberg
JGBS: Little Changed, Capex Beats, US Tsys Bear-Steepen
In Tokyo morning trade, JGB futures are flat, +1 compared to settlement levels, after giving up overnight gains on Friday.
- Capital spending excluding software rose 6.9% from a year earlier, compared to the median estimate of +5.3%.
- Jibun Bank/S&P Global May Manufacturing PMI rises to 49.4 from 48.7 in April.
- 1Q Company Profits +3.8% y/y and Sales +4.3% y/y.
- Cash US tsys have bear-steepened, with yields flat to 3bps higher, in today’s Asia-Pac session.
- (MNI) The Federal Reserve should aim for a much smaller balance sheet in order to have a smaller footprint in financial markets and reduce the risk of inflationary bursts like the one experienced after Covid, former Fed Board Governor Kevin Warsh said Friday. The Fed's balance sheet "is trillions larger than it needs to be. We can't make this change overnight," said Warsh, who is seen as a leading candidate to replace Jerome Powell as Fed chair next year.
- Cash JGBs are flat to 1bp cheaper across benchmarks. The benchmark 10-year yield is 0.6bp higher at 1.507% versus the cycle high of 1.596%.
- Swap rates are flat to 1bp higher. Swap spreads are little changed.
