GOLD: Bullion Range Trading Ahead Of Fed Speakers & US Data

JGB futures sit at 137.42, -.08 in latest dealings, close to session lows (137.36). This leaves us close to July lows (137.32 from July 25th). A clean break lower could see a move sub 137.00 targeted, with 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg. 

• Futures spiked higher on the news that Trump has ended Fed Governor Cook's term, effective immediately. This drove US Tsy futures higher, with JGB futures getting to 137.54. However, US Tsy futures at the back end of the curve how now turned lower, with the curve steepening in response to the Cook Fed news.
• On the data front, we had slightly softer July services PPI in Japan. This was in line with recent headline CPI softness though, so market reaction was minimal.
• Cash JGB yields are little changed. The 10yr has edged higher to 1.625%. This is close to recent cycle highs, but not a definitive break higher. In the swap space, the 10yr was last around 1.43%.
• Headlines have also crossed around a proposed fuel tax cut: "*KATO: PERMANENT SOURCE OF FUNDING IMPORTANT FOR FUEL TAX RATE" - via BBG, while also of note was onshore media reports: "Japan Mulls 5-Year Tax Break on Capital Investments: Yomiuri" - via BBG, while: "*JAPAN MOF TO SEEK 32T YEN FOR DEBT SERVICING COSTS: KYODO" also crossed.
• This would be a step up from the current fiscal year debt service costs. via BBG: "The amount will exceed the ~28.2t yen the ministry had sought in its initial budget for fiscal 2025." 

The Asia-Pac USD/JPY range has been 146.99-147.88, Asia is currently trading around 147.80, +0.01%. The demand  towards 146.00 has been pretty solid all of July and August, keeping us for the most part in a 146.00-149.00 range. CFTC data for last week shows leveraged accounts again added to JPY shorts so the initial reaction to Powell would have been unwelcome and they would be breathing a little easier today as the support continues to look solid. This morning this level held once more after again being challenged in our session in reaction to Trump firing Fed Governor Cook.

• Japan July Services PPI Weaker Than Forecast But In Line With Lower CPI: Japan's July PPI services print was below market forecasts. We printed 2.9%y/y, versus 3.2% forecast, which was also the June outcome. In m/m terms we rose 0.3%, the firmest gain since April and after a 0.2% decline in June. Broadly this data looks to be evolving as the BoJ expected. Core inflation pressures remain elevated, but the central bank appears to have time on its hands to assess such trends.
• "JAPAN FINMIN KATO: IMPORTANT FOR FX TO REFLECT FUNDAMENTALS, MOVE STABLY, ALARMED OVER FX MOVES, INCLUDING THOSE DRIVEN BY SPECULATORS,  WILL CLOSELY MONITOR JGB MARKET MOVEMENTS, WILL PURSUE APPROPRIATE DEBT MANAGEMENT” - [RTRS]
• "AKAZAWA: AIM TO SEEK CAR TARIFF CUT AND AMEND EXECUTIVE ORDER" - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 148.00($992m), 146.35($716m).Upcoming Close Strikes : 148.00($893m Aug 27), 146.50($1.14b Aug 29), 145.00($1.7b Aug 29)  - BBG.
• CFTC data shows last week asset managers have begun to add to their JPY longs after a consistent period of reduction +71379( Last +60866), leveraged funds though again used the dip to add to their newly built short JPY position -50848(Last -41257).

Fig 1 : USD/JPY Spot Daily Chart

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

The AUD/USD has had a range of 0.6471 - 0.6494 in the Asia- Pac session, it is currently trading around 0.6475, -0.10%. US equities took a run lower on the news Trump has fired Fed Governor Cook, down close to 0.50% at one point. Risk stabilised from there and a statement from the Governor saying she would not be stepping down and would fight the allegations has seen some of these losses pared back. The AUD finds itself firmly back in the middle of its recent multi-month range of 0.6350-0.6650 and will need a clearer direction from both the USD and risk to embark on a decent move in either direction

• RBA Minutes: Too Much Uncertainty To Determine Pace Of Future Easing. Given the August decision to cut rates was unanimous, the discussion regarding the outlook was the important part of the RBA meeting minutes. They were clear that further rate cuts were consistent with underlying inflation returning to the 2.5% mid-point of the target band. It was the pace of future easing that “was not yet possible to judge” with the risks around the outlook “in both directions.
• AUSTRALIA: Policy Model Suggests Stable Rates. Our simple RBA policy reaction function is showing that based on the growth and inflation outlook rates should stay around 3.6% through H1 2026 with no further easing as underlying inflation remains above the 2.5% mid-point of the target band. The model includes a one quarter lead of the trimmed mean inflation gap, thus its return to zero in Q4 2027 is not yet factored in the output. As Governor Bullock has said previously, the further out a forecast is the more uncertainty there is around it. It is worth noting that econometric estimates are just a signal and not a prediction.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6400(AUD622m), 0.6455(AUD350m), 0.6475(AUD346m). Upcoming Close Strikes : 0.6525(AUD695m Aug 27), 0.6500(AUD680m Aug 29) - BBG
• AUD/JPY - Asia-Pac range 95.37 - 95.82, Asia is trading around 95.65. The pair has topped out back towards the 96.00 area this morning helped by the sacking news. This pair’s direction will be determined by the market's ability to follow on with this risk-on move or not.

Fig 1: AUD/USD spot 2H Chart

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