FOREX: AUD Crosses - Mixed Performance, AUD/CAD Leading The Move Higher

• 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.  

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

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.