AUD: AUD/USD - Drifts Higher As The USD Continues To Struggle
The AUD/USD has had a range today of 0.7119 - 0.7147 in the Asia- Pac session, it is currently trading around 0.7130. The AUD has remained well supported in our session as the USD continues to struggle. The AUD after a brief drop overnight is back above its recent highs, the AUD remains a favourite vehicle to express a long at the moment. The AUD has been outperforming across the board as leveraged funds continue to add to their longs as further hikes are potentially priced in. On the day, the first support is back toward the 0.7060–0.7090 area, and then the 0.7000 area. The bulls will be looking for dips to remain supported in order to regain the momentum to challenge the pivotal 0.7100-0.7200 area. A sustained break above here targets 0.7600-0.7800 first and then 0.8000-0.8200.
- MNI BRIEF: RBA's Bullock Sees NAIRU At 4.6%. Bullock said returning inflation to the 2.5% midpoint target may or may not require further hikes, adding that a stronger Australian dollar and higher interest rates will help dampen demand. Australia's unemployment rate tightened to 4.1% in December.
- Bloomberg - “Australia’s central bank stands ready to raise interest rates further if inflation proves persistent, Governor Michele Bullock said, stressing that the board remains cautious and is yet to decide whether further tightening is warranted.”
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.7080(AUD342m). Upcoming Close Strikes : 0.6800(AUD1.55b Feb 13), 0.6825(AUD791m Feb 13) - BBG
- The AUD/USD Average True Range for the last 10 Trading days: 79 Points
Fig 1: AUD/USD spot Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
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CNH: CNH/JPY To Fresh Highs, Vols, RRs Unmoved Post Trump Iran-Tariff News
USD/CNH is holding marginally higher, last near 6.9715/20, with some spill over higher from higher USD/JPY levels likely impacting. However, CNH/JPY continues to make fresh highs above 22.7700, with yen remaining the epicentre of FX weakness in the first part of Tuesday trade. We also had only a modest downtick in the USD/CNY fixing earlier, while the error term widen, which may also be curbing downside interest in the pair on the day. For USD/CNH we arguably need to see a shift back above 7.0000 to drive a re-assessment of near term bearish momentum.
- Trump's earlier headline around a 25% tariff on anyone doing business with Iran may also be impacting, although the market be awaiting more details before judging the impact of this measure.
- 25% is under the average tariff rate that China currently faces from the US (30.8% per BBG). This fell in 2025 as the two-sides hashed out a trade truce.
- The general bias around risk reversal levels is firmer since the start of the year (perhaps hedging the break under 7.00), although reaction today has been fairly muted, suggesting limited impact from the Iranian/US headlines. It's a similar backdrop across the vol space, 1 month around 2.53%, so still close to recent cycle lows.
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JGBS: Bear-Steeper Holding At Lunch But Long-End Yields Off Highs
At the Tokyo lunch break, JGB futures are weaker but above lows, -36 compared to settlement levels, as trading resumes after the long weekend.
- Cash US tsys are slightly richer in today's Asia-Pac session after yesterday’s modest sell-off.
- Cash JGBs has bear-steepened across benchmarks, with yields 2-5bps higher. Long-end yields are, however, off session highs.
- (Bloomberg) “The 30-year government bond yield surges as much as 12 basis points to 3.52% on Tuesday, as speculation that Prime Minister Sanae Takaichi might dissolve the parliament as soon as next month grows following local media reports.”
- Nonetheless, today’s current move leaves the 2/10 curve around a fresh cycle, steepest since 2011.
- The benchmark 10-year yield is 4.4bps higher at 2.141% versus today’s fresh cycle high of 2.162%.
- Swap rates are mixed but little changed.
Source: Bloomberg Finance LP
