EURJPY TECHS: Corrective Pullback

Aussie bonds ticked higher through the Sydney day, building on an overnight bid in futures which stemmed from Monday’s moves in core global FI markets (a product of wider worry re: slowdowns in global growth following disappointing U.S. and China data prints). There was little by the way of major macro headline flow observed during the session.

• Cash ACGBs run 10.5-14.0bp richer across the curve, with the 7- to 12-Year zone leading the bid. YM is +12.5 and XM is +14.0, comfortably through their respective overnight highs, while Bills run 7 to 15 ticks richer through the reds. EFPs are narrower on the day, with the 3-/10-Year box steepening a touch.
• ACGBs looked through the release of the RBA’s August monetary policy meeting minutes, with nothing by way of fresh, meaningful information noted. The release saw members emphasise that the central bank is “not on a pre-set path,” in addition to further colour re: its thoughts on the narrow path that it finds itself on when it comes to striking the correct balance between fighting inflation and allowing the economy to advance on an even keel. STIR markets currently price in ~40bp of tightening for the RBA’s Sep meeting, virtually unchanged from levels observed before the release of the minutes.
• Wednesday will see the release of the Westpac Leading Index for July followed by the Q2 wage price index. Elsewhere, there will be A$800mn of ACGB May-2032 on offer via auction.

• RES 4: 137.27 76.4% retracement of the Jul 14 - Aug 2 downleg
• RES 3: 136.58 High Jul 28
• RES 2: 135.96 61.8% retracement of the Jul 14 - Aug 2 downleg
• RES 1: 133.99/35.58 50-day EMA / High Aug 8
• PRICE: 133.32 @ 06:34 BST Aug 16
• SUP 1: 131.74 Low Aug 11
• SUP 2: 130.41/130.00 Low Aug 2 / Round number support
• SUP 3: 129.51 Low Jun 2
• SUP 4: 128.64 Low Jun 1

USDJPY is unchanged. Firm short-term resistance has been defined at 135.58, the Aug 8 high. The Aug 10 sell-off highlights a reversal of the recent correction between Aug 2 - 8. A bearish theme remains in place following the Jul 28 bull channel breakout. The channel is drawn from the Mar 4 low and the break confirmed a bear cycle. Attention is on 130.41, the Aug 2 low and the bear trigger.

AUD/USD has had a fairly quiet afternoon session so far, tracking a 0.7020-0.7040 range (last 0.7025). The currency is outperforming against most currencies in the G10 FX space though. AUD/JPY is holding close to session highs, last at 93.70/75, while the AUD/NZD cross probed above 1.1060. Note the 50-day MA in the cross comes in at 1.1059.

• The strength in the AUD/NZD cross (+0.25% for the session) is a little at odds with relative yield/rate differentials today, which have drifted lower. -5bps in the government bond space for the 2yr tenor, while a similar move in the swap space.
• The A$ has likely seen greater benefit today from the more positive China rhetoric, with the NDRC talking up efforts to stabilize the growth backdrop and further support for the property sector.
• There hasn't been much follow through in terms of commodity prices though. Copper is back to flat on the day, while iron ore is holding under $108/tonne.
• Looking ahead, as we highlighted late last week, tomorrow shapes up as a key day for the AUD/NZD cross with AU Q2 wages data. The market expects a 0.8% QoQ outcome (0.7% previously), which would take the YoY pace to 2.74% (from 2.4% in Q1). The RBA stated in the minutes that its liaison program suggested wages growth was continuing to rise. The recent NAB business survey painted a similar picture.
• Also out is the RBNZ decision. The market expects a 50bps hike, but most of the focus is likely to rest on the bank's forward guidance (see our preview here for more details).