FOREX: AUD Crosses - Trade Sideways And Consolidate As USD Takes Center Stage
A third day of losses for US equities as the pullback extends and looks to be putting in a short-term top for now. This morning US futures are trading a little lower, E-minis(S&P) -0.10%, NQZ5 -0.05%. The AUD traded sideways to a little lower in the crosses overnight as the USD took centre stage making the crosses the best place to express AUD strength for now.
- EUR/AUD - Overnight range 1.7783 - 1.7858, Asia is currently trading around 1.7855. The pair topped out nicely around the 1.7950 area. Price is still in the middle of its recent 1.7600 -1.8100 range. Expect sellers to fade bounces while price remains below 1.8000.
- GBP/AUD - Overnight range 2.0375 - 2.0434, Asia is trading around 2.0415. The pair topped out around 2.0550 last week, I suspect rallies back to 2.0550/0650 will continue to be met with supply initially. The price action of the pair is looking potentially exhaustive but a sustained break sub 2.0300 is needed to open up a deeper pullback towards 1.9800/2.0000.
- AUD/JPY - Overnight range 97.75 - 98.22, Asia is trading around 97.90. The pair found solid demand back towards 97.00 and bounced this week with the help of the AU CPI print. While above 97.00 the focus will turn to September’s highs toward 98.50.
- AUD/NZD - Overnight range 1.1319 - 1.1347, the cross is dealing in Asia around 1.1340. The Cross has broken above the multiple highs around the 1.1200 area and is beginning to accelerate higher, helped by the AU CPI print. Dips should now continue to be supported as the market turns its focus towards the 1.1400/1.1500 area.
Fig 1: GBP/AUD spot 2H Chart
Source: MNI - Market News/Bloomberg Finance L.P
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USD: BBDXY - Holding Above 1200
The BBDXY range overnight was 1204.11 - 1208.69, Asia is currently trading around 1205. The USD has been consolidating around 1205, managing to hold above its support in the face of the ongoing Fed debacle. A sustained break below 1197/1195 is needed to regain the momentum lower and retest the year's lows. We are heading into corporate month-end and this could explain the market's reticence to press the USD lower as we could see some USD demand potentially over today and tomorrow.
- Otavio Costa on X: “For the first time, the US is running twin deficits while government debt has reached extreme levels, and the dollar stands at one of its most overvalued levels in history. This combination is unsustainable. Something must serve as the outlet for these pressures, and the most likely escape valve is the dollar itself.”
- “While many argue the selloff has gone too far, we see it as likely the opening phase of a broader, long-term weakening trend — driven by the growing necessity of financial repression rather than mere policy choice.”
- Phil Magness on X: “Questions you should be asking right now: 1. Why does Trump want to control the Federal Reserve board? 2. Why does Trump want to staff it with an economist who's best known for his crackpot scheme to intentionally devalue the dollar & effect a backdoor national debt default?”
- Bloomberg - “Dollar, Two-Year Yields Navigate Shifting Rate Winds Together: The dollar’s strengthening correlation with Treasury yields is a double-edged sword, as traders grapple with repricing the outlook for Federal Reserve interest rates against a backdrop of a weakening labor market and burgeoning inflation pressures..”
- Data/Events : MBA Mortgage Applications
Fig 1: BBDXY 2H Chart
Source: MNI - Market News/Bloomberg Finance L.P
AUSSIE BONDS: Yields Extend Gains, But Follow Through Limited, OIS +1-2bps
Government bond yields have extended gains post the July CPI beat, albeit with limited follow through. The front end move was beyond 3bps before being pared. The 3yr yield was last near 3.42%. The 10yr remains close to 4.32% in latest dealings, fading a move above 4.34% post the data.
- Headline CPI was +2.8%y/y, versus 2.3% expected, while the trimmed mean rose 2.7%y/y prior was 2.1%. Given this is the first month of the quarter and it doesn't contain updates on most of the services components, the market may be treating the print with some degree of caution.
- In the futures space, 3yr (YM) was off 4.5bps to 96.55 not long after the data. 10yr futures were holding at -2bps.
- OIS dated RBA contracts are around 1-2bps firmer verus pre data levels.
CHINA: Industrial Profit Declines Continue
- China's Industrial Profit in July declined, marking a third consecutive month.
- China Industrial Profits YoY contracted -1.5%, following -4.3% in June.
- This is the seventh monthly decline out of the prior 12.
- The Year to date result of -1.70% was in line with the prior month's result of -1.8%.
- The Year to date Industrial Company's Profit was CNY4.02tn.
