OIL: Crude Continues Rally, US Russia Sanctions Make Indian Refining Difficult

The AUD/USD has had a range of 0.6581 - 0.6604 in the Asia- Pac session, it is currently trading around 0.6585, -0.20%. The AUD has drifted lower in Asia giving back most of its overnight gains. The USD retracement stalled yesterday as sellers reemerged even with some clearly hawkish rhetoric from Fed speakers overnight. The AUD/USD continues to do some work around 0.6600 and should still see dips supported for now with the first buy-zone back towards the 0.6500/0.6550 area.

• Bloomberg -  “Morgan Stanley Says Sell Dollar Versus Aussie and Loonie. The Federal Reserve’s perceived emphasis on the job market at the expense of inflation will see the US dollar’s decline widening, according to Morgan Stanley strategists who now recommend selling the greenback versus the Canadian and Australian dollars.”
• September PMIs Off Recent Highs, But Q3 Average Higher : Australian preliminary PMIs for September fell from their August levels. The manufacturing print came in at 51.6, from 53.0, while services were at 52.0 from 55.8 in August (see the chart below). This saw the composite PMI come in at 52.1 from 55.5.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6530(AUD415m), 0.6650(AUD908m), 0.6680(AUD486m). Upcoming Close Strikes : 0.6450(AUD529m Sept 24), 0.6600(AUD703m Sept 24), 0.6720(AUD791m Sept 24) - BBG
• CFTC Data last week shows Asset managers started to significantly reduce their shorts, -41095(Last -68333). The Leveraged community has pulled back their shorts to be almost flat, -1519(Last -5081).
• AUD/JPY - Asia-Pac range 97.25 - 97.56, Asia is trading around 97.35.The pair has stalled towards 98.50, dips back towards 96.50/97.00 should be expected to be supported now first up.

Fig 1: AUD/USD spot Daily Chart

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

• Bond Futures are lower in China today, wiping out the gains from yesterday.
• The 10-Yr is lower by -0.21 at 107.73 after yesterday's gains of +0.19.  The 10-Yr remains below all major moving averages.
• The 2-Yr is lower by -0.04 at 102.35 to push further below all major moving averages.  The 20-day EMA above is at 102.39.
• At 1.80%, the 10-YR CGB is at the top end of the 1.70-1.80% range it has traded in since early August.  

Earlier headlines crossed from Japan LDP leadership candidates. Notably from Takaichi we got, via Rtrs, :"JAPANESE PM CONTENDER TAKAICHI: WILL USE TAX REVENUES TO FUND TAX CUT, SPENDING FOR STEPS TO COMBAT RISING PRICES BUT IF NECESSARY, SHOULD ISSUE BONDS. 

• This fits with Takaichi's known fiscal expansion viewpoint. Still, she sits well down per Polymarket odds, last around 28, off recent highs.
• Koizumi continues to lead, last at highs of 70 (since the LDP election was called a few weeks ago), see the chart below (Koizumi odds are the white line, Takaichi the orange line). Still, Takaichi remains the top pick among onshore opinions.
• Koizumi noted earlier:  KOIZUMI: MUST BE MINDFUL OF NEED FOR FISCAL DISCIPLINE, BUT ACHIEVING SOLID ECONOMIC GROWTH IS BASIS FOR GUIDING SOUND FISCAL POLICY - [RTRS]"
• His remarks are more in line with a status quo fiscal outcome, although changes can't be ruled out.
• The JGBs 2/30s curve has flattened of late, last +225bps, we were around +245bps in early September. Nevertheless, the 2/30 curve remains near its steepest since 2005.
• The LDP election is scheduled for Oct 4. 

Fig 1: Koizumi Clear Front Runner For LDP Leadership Race - Per Polymarket 

Source: Polymarket/Bloomberg Finance L.P./MNI