AUSSIE BONDS: Calm Returns After Yesterday's Carnage, New Oct-37 Bond Priced

The USD/JPY range today has been 157.23 - 157.74 in the Asia-Pac session, it is currently trading around {USDJPY Curncy}. USD/JPY has drifted a little lower as a number of officials start jaw-boning about the one-sided nature of the move. The BOJ is in a tough spot, it's not great when you hike rates and your currency collapses lower. The minimal reduction in differentials is not incentivising a market that is concerned about Japan’s Fiscal policy to start buying Yen. A test of the BOJ/MOF resolve looks inevitable at the moment as the market turns its focus toward the important 160.00 area. Technically USD/JPY remains in an uptrend, while the first support back toward the 152.50-154.50 area is intact it remains a buy on dips. In today's Asian session, we might get some reversion back to the mean after such a strong move on Friday but look for buyers to reemerge on dips back toward the 15.60-90 area initially.

• "JAPAN TOP CURRENCY DIPLOMAT MIMURA: RECENTLY SEEING ONE-SIDED, RAPID MOVES, WILL TAKE APPROPRIATE ACTION AGAINST EXCESSIVE MOVES, CONCERNED ABOUT FOREX MOV " - RTRS
• MNI AU - The BoJ hiked rates by 25bps last Friday, in line with the sell-side economic consensus and market pricing. As expected, the BoJ also kept a tightening bias into 2026, as it still views policy settings as accommodative. Still, the market came away disappointed on lack of details on the timing around further rate hikes, with yen weakening and JGB yields pushing higher. Market pricing has a further 25bps hike priced by around the July meeting next year. Part of the market focus will be on whether higher USD/JPY levels bring forward market expectations for the next hike.
• Options : Close significant option expiries for NY cut, based on DTCC data: 155.00($1.25b), 156.00($870m), 157.50($1.22b). Upcoming Close Strikes : 156.00($1.32b Dec 23), 158.00($868m Dec 23)  - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 101 Points

Fig 1 : USD/JPY Spot Daily Chart

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

The AUD/USD has had a range today of 0.6606 - 0.6626 in the Asia- Pac session, it is currently trading around {AUDUSD Curncy}. The AUD has pushed a little higher in Asia looking to probe the 0.6635 area. The AUD price action for the moment remains constructive, let's see if the pair can build a base from which to extend higher again. Technically while the AUD remains above 0.6500-0.6550 dips should continue to be supported. On the day, watch to see if this 0.6590-0.6600 area can continue to hold, in order to test above 0.6635 which could then see the AUD target the 0.6660-80 resistance. Though a couple of days outside of Christmas that might be wishful thinking.

• MNI AU - RBA December Meeting Minutes Released Tuesday, No Data This Week or Next. It decided to leave rates at 3.6% this month where they have been since August, which was expected, but a rate cut was not part of the discussion. Governor Bullock said in the December press conference that 2026's discussions are likely to be around whether to leave rates at 3.6% or increase them, as the Board is uncomfortable with where inflation currently is. This suggests that the RBA's stance is skewed to the upside. The minutes will be scrutinised for more information around this and the degree of concern about upside inflation risks.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6550(AUD629m), 0.6610(AUD551m). Upcoming Close Strikes : 0.6475(AUD599m Dec 23), 0.6535(AUD428m Dec 23), 0.6600(AUD557m Dec 23) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 33 Points

Fig 1: AUD/USD spot Daily Chart

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

Aussie bond futures are notably weaker, amidst negative spill over from both US and JGB futures moves to start the week. The 10yr Aussie bond future is around 5.5bps lower, last near 95.14, which brings us back close to Dec lows (95.12 from Dec 10). 3yr futures are off close to the same amount and back around 95.75 (but remain a little more above recent lows relative to the 10yr). ACGB yields are up around 4-5bps across the benchmarks, with fairly uniform moves across the curve. 

• Spill over from JGB moves has been apparent as markets grapple with uncertainty around the timing of further BoJ rate hikes, while fresh fiscal stimulus is also coming for Japan.
• For the ACGB 10yr yield, we are back around 4.80%, which marked earlier Dec highs, a clean break higher could the 5% area targeted, last touched in 2023. For the 3yr, upside focus will rest at 4.200% (last 4.16%).
• The 3/10s curve is little changed near +63bps, while the AU-US 10yr spread is close to recent highs, last +63bps.
• Tomorrow, we get the RBA minutes from the Dec policy meeting. It decided to leave rates at 3.6% this month where they have been since August, which was expected, but a rate cut was not part of the discussion. There are no data releases this week or next. Governor Bullock said in the December press conference that 2026's discussions are likely to be around whether to leave rates at 3.6% or increase them, as the Board is uncomfortable with where inflation currently is. This suggests that the RBA's stance is skewed to the upside.