CHINA PRESS: Fed Cuts Could Give PBOC Space
The Federal Reserve’s September rate cut could lead to reserve requirement ratio (RRR) and interest rate reductions in China, according to Liu Tao, senior researcher at Guangkai Chief Industry Research Institute. At the same time, the central bank may increase targeted liquidity support for specific sectors such as technological innovation and incremental use of structural monetary policy tools, according to Ming Ming, chief economist at CITIC Securities. However, Zhao Qingming, deputy dean at the Huiguan Information Technology Research Institute, said policymakers were unlikely to cut interest rates in the short term given the strong stock market. (Source: Securities Daily)
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STIR: RBNZ-Dated OIS Slightly Firmer Ahead Of RBNZ Decision
RBNZ-dated OIS pricing is slightly firmer across meetings ahead of tomorrow’s RBNZ Policy Decision.
- 22bps of easing is priced for today’s meeting, with a cumulative 37bps by November 2025.
- Notably, pricing is 6-11bps softer across meetings versus late July’s pre-CPI levels.
Figure 1: RBNZ Dated OIS Current vs. Prior (%)
Source: Bloomberg Finance LP / MNI
FOREX: AUD Crosses - AUD Underperforms As Risk Tops Out
US equities saw some profit-taking heading into Jackson Hole led by big Tech, this saw risk sensitive currencies like the AUD trade heavy. This morning US futures trade a little lower, ESU5 -0.20%, NQU5 -0.35%. The AUD has come back under pressure in the crosses as risk looks to be stalling and potentially correcting lower. Some big levels approaching in the crosses but not sure we break these before the event risk at Jackson Hole is dealt with.
- EUR/AUD - Overnight range 1.7972 - 1.8061, Asia is currently trading around 1.8045. With US stocks turning lower overnight potentially signaling a pause in its recent runup, this pair has started to regain upward momentum. It is currently probing the top end of its 1.7650/1.8100 range, which has seen decent supply cap it the last few months, a sustained break above 1.8100 could see the move extend higher.
- GBP/AUD - Overnight range 2.0814 - 2.0909, Asia is trading around 2.0900. The pair found solid demand around the 2.0800 area and extended higher overnight as risk turned lower. Having broken above the pivot within its 2.0400 - 2.1050 range, dips should be supported now enroute to testing 2.10/11.
- AUD/JPY - Overnight range 95.13 - 95.96, Asia is trading around 95.20. The pair broke through 95.50 overnight and has put in another lower high. Although the price is still in the 94.00-97.50 range the multiple failures towards 97.00 looks like a rounded top and with risk looking vulnerable a test of the lower end of the range looks possible. A sustained break below the 94.00/94.50 area could potentially see momentum lower pick up. Not sure we see this until the Jackson Hole event risk is out the way.
- AUD/NZD - Overnight range 1.0939 - 1.0960, the cross is dealing in Asia around 1.0950. The Cross is trying to push higher but continues to stall back towards 1.1000 and will need a sustained break here to potentially extend. Until then the range looks to be 1.0850-1.1000.
Fig 1: AUD/JPY spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
JGBS: Slightly Mixed, Machine Orders Stronger, Trade Balance In-Line
In Tokyo morning trade, JGB futures are little changed, +3 compared to settlement levels.
- Japan June core machine orders were better than forecast. We rose 3.0%m/m, versus -0.5% forecast and -0.6% prior. The y/y print was 7.6%, against a 4.7% forecast and 4.4% prior. Today's machine orders print continues to paint a resilient capex picture for Japan's economy.
- Japan July export and import outcomes were fairly close to market expectations, but the trade balances were slightly weaker. Exports fell -2.6%y/y (-2.1% forecast and -0.5% prior), while imports were -7.5%y/y, (-10.0% forecast and 0.3% prior). The trade deficit was -¥117.5bn, against a ¥198.5bn forecast. In seasonally adjusted terms we printed at -¥303bn, against a -¥67.2bn forecast (June's outcome was -¥247.6bn).
- US tsys are little changed in today’s Asia-Pac session.
- Cash JGBs are slightly mixed across benchmarks, with yields 1.5bps lower (7-year) to 1bp higher (40-year). The benchmark 10-year yield is 1bp lower at 1.592% versus the cycle high of 1.616%.
- Swap rates are flat to 1bp higher, with a steepening bias.
