AUD: AUD/USD - Probing Above 0.7200 Ahead Of NFP As The USD Struggles

• CGB yields remain resolute today in the face of the expected uptick in issuance - though volumes today are not significant.  
• China is selling 2028, 2029, 2031,2041 and 2056 dim sum bonds in small sizes whilst onshore there is a CNY73bn 30-Yr.  
• Issuance is expected to pick up as the economic output moderates.  The NDRC proposed the construction of major projects and key infrastructure projects, seizing the peak construction season in the third quarter, accelerating the disbursement and use of CNY800 bn of new policy-based financial instruments, and speeding up the issuance and use of special-purpose bonds. The PBOC clearly stated that it will intensify efforts to expand domestic demand and optimize supply, while strengthening coordination with local finance and industrial departments to amplify the incentive effect of policies.
• Tomorrow sees 1, 7 and 10-Yr issuance of around CNY300bn as yields remain near to recent lows.  
• The 10-Yr is at 1.70% -  a level by many seen as the floor and unchanged today.  
• Look in the coming weeks for some moderate moves higher in yields with the 10-Yr over the second half of the year heading back towards 1.75%

The EUR/USD range overnight was 1.1503-1.1534, Asia is currently trading around 1.1540. The pair found support back towards 1.1500 as reports the Straits of Hormuz could be opened imminently, adding to risks already significant tailwinds overnight. The pair has moved back toward its recent highs around the 1.1550 area, though considering the extent of some of the other moves seen it does seem to be lagging. I will be watching closely over the short-term to see if this move lower in the USD is anything more than a knee-jerk reaction or is it able to build on its initial reaction. For the short-term it seems we should be prepared for some ranges as those extra USD’s work themselves through the system. I remain skewed in favour of fading rallies with this pivotal weekly 1.1550 area coming back into play.          

• Kantro on X: “Strait of Hormuz opening will lower odds of Fed raising rates this year: Piper Sandler's Kantrowitz”  https://x.com/MichaelKantro/status/2084771108134302036?s=20
• “The US and Iran appeared to be closer to an interim deal to reopen the Strait of Hormuz. Qatar said a proposal had been drafted and Donald Trump discussed the effort with the emir in a call.” - BBG
• Options : Closest significant option expiries for NY cut, based on DTCC data: 1.1450(EU985m), 1.1465(EU984m), 1.1500(EU1.72b). Upcoming Close Strikes :  1.1350(EU2.14b Aug 6), 1.2000(EU1.63b Aug 10). - BBG
• The EUR/USD Average True Range for the last 10 Trading days: 53 Points

Fig 1 : EUR/USD Spot Weekly Chart

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

Inflation was lower than forecast in July. Headline moderated to 1.95% from 2.4%, which was not expected, while core rose only 0.1pp to 1.3% y/y. Both remain below the 2% mid-point of the Bank of Thailand (BoT) target band and with the economy continuing to face structural, cyclical and global headwinds, the lack of an inflation problem should allow BoT to keep rates at 1% when it meets at the end of August. 

Thailand CPI y/y%

Source: MNI - Market News/LSEG

• While underlying inflation remains subdued, it was the highest in just over 3 years signalling some pass through to prices due to higher costs, especially of personal care and processed food products.
• BoT is likely to be pleased there is some moderate pricing power though after core spent almost 3 years below 1% and headline was negative for a year. The July S&P Global PMI showed that selling price inflation remains moderate and eased a bit from June.
• The MPC stated in June that it expected inflation to ease as supply chains normalise once shipping resumes through the Persian Gulf, which may be imminent. Governor Vitai also said in early July that inflation is likely to be below BoT’s 2.8% projection for 2026.
• The drop in headline was helped by fuel subsidies but product promotions also contributed.