CHINA RATES: China Repo Rates Diverge On Friday

AUD/USD is down ~0.9% last printing at $0.6620/30 after May CPI fell to 5.6% Y/Y, a print of 6.1% had been expected, the prior read was 6.8%.

• The pair was down ~0.3% before the print as weakness in US equity futures weighed.
• Support $0.6627, 61.8% retracement of May 31 to Jun 16 rally, was breached before the pair pared losses. The next support level is $0.6610 the Jun 6 low.
• AUD/NZD is down ~0.4% and deals a touch above the $1.08 handle.

ACGB richened as much as 7bp after May’s CPI Monthly data misses, printing 5.6% y/y versus expectations of 6.1%. April’s reading was 6.8% y/y. Futures have subsequently reversed a portion of those gains to be 3-4bp richer post-data (YM +7.0 XM +5.5).

• Cash ACGBs are 4bp richer after the data to be 5-7bp richer on the day. The AU-US 10-year yield differential is -8bp on the day at +12bp.
• Swap rates are 7-9bp richer on the day with EFPs tighter.
• The bills strip bull steepens with pricing +7 to +11.
• RBA dated OIS pricing shunts 3-8bp softer for meetings beyond July after the CPI data. The market now attaches a 31% chance of a 25bp hike in July.

The latest round of ACGB Jun-51 supply sees the weighted average yield print 0.2bp through prevailing mids (per Yieldbroker), extending the recent trend of pricing at ACGB auctions.

• An expectation of continued firm pricing at auctions proved somewhat correct but the cover ratio of 2.2033x did however print lower than the 2.2833x at the May 31 auction.
• The reduced outright yield, flatter yield curve, and minor relative value richness between the Mar-47 and Jun-51 bonds all appear to have weighed on the overall level of demand observed during today's auction. The wider AU-US 30-year yield differential likely provided some offset via enhanced offshore demand.
• XM futures is little changed post-supply after an initial post-auction cheapening. The Jun-51 bond is slightly weaker versus pre-auction levels in cash trade with the yield -2.9bp on the day.