US TSY FLOWS: Futures Little Changed After Giving Up Early Gains

The Asia-Pac USD/JPY range has been 147.05-147.82, Asia is currently trading around 147.80, +0.40%. USD/JPY saw some decent buying into the Japanese Fix, this demand then continued into the afternoon session helping the pair bounce back off its support. The demand towards 146.00 has been pretty solid all of July and August, keeping us for the most part in a 146.00-149.00 range.

• MNI: BOJ's Himino Sees Gradual Hikes; Upside, Downside Risks. Bank of Japan Deputy Governor Ryozo Himino said Tuesday the Bank would raise its policy rate to adjust the degree of monetary accommodation if its baseline scenario for economic activity and prices materialises, though he gave no guidance on timing or pace.
• "BOJ DEPUTY GOV HIMINO: THERE IS BOTH CHANCE TRADE POLICY IMPACT COULD BE SMALLER OR BIGGER THAN EXPECTED, MUST FOCUS ON POSSIBILITY IT COULD BE BIGGER THAN EXPECTED - [RTRS]"
• On the balance sheet: "BOJ DEPUTY GOV HIMINO: BOJ'S PLAN TO REDUCE JGB BUYING SHOULD BE BASED ON PRINCIPLE THAT LONG-TERM RATES ARE TO BE FORMED IN MARKETS, BOJ SHOULD PROVIDE PREDICTABILITY WHILE ALLOWING ENOUGH FLEXIBILITY TO SUPPORT MARKET STABILITY" RTRS
• “JGB Futures Jumping With Relief After Solid 10-year Auction. JGBs are enjoying a leap higher after the bid-to-cover ratio printed at 3.92 for today’s auction, the best since 2023; there’s also a tighter tail than the previous sale. The list of buyers was led by MUFJ-MS, which typically signals long-term buyers participated.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 148.30($334m).Upcoming Close Strikes : 146.50($1.39b Sept 3), 146.00($2.16b Sept 5)  - BBG.
• CFTC data for last week shows leveraged accounts have maintained their recent JPY shorts and will be hoping this support continues to be solid. A sustained break below 145.50/146.00 is needed to to turn the focus back to the year's lows towards 140.00.

Fig 1 : USD/JPY Spot 2H Chart

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

Aussie bond futures hold weaker, but are away from session lows. 3yr futures (YM) were last 96.545, off 2bps. Earlier lows were at 96.53, which was just under late August lows. 10yr futures (XM) were last around 95.62, off 3.5pbs. Session lows were at 95.61. The negative bias to US Tsys futures has likely spilled over into Aussie futures to some degree. Sentiment has been helped somewhat in the aftermath of the JGB 10yr auction, which saw solid demand. 

• In the ACGB yield space, the bias if for a steeper curve, with yield gains of 2-5bps, led by the back end. The 3yr benchmark was last around 3.44% (+2bps), while the 10yr was close to 4.35% (up 3bps). This benchmark is now back to late July levels.
• On the data front, Q2 net exports contributed 0.1pp to GDP, as expected, while public demand was neutral. Q2 GDP prints on Wednesday and Bloomberg consensus is forecasting a 0.5% q/q increase bringing annual growth to 1.6% from Q1’s 1.3%, in line with the RBA’s August projection. However, almost all estimates were provided before this week’s inventory, net export and public demand data. Inventories were close to consensus and net exports were in line.
• Q2 data show only a 0.1pp contribution to growth from net exports and nothing from public demand as government consumption’s 0.2pp was offset by the 0.2pp drop in public investment. The 0.1% q/q rise in inventories is likely to mean it had a neutral effect on growth.

The AUD/USD has had a range of 0.6537 - 0.6559 in the Asia- Pac session, it is currently trading around 0.6540, -0.20%. The AUD has drifted lower for most of our day. The AUD finds itself firmly back in the middle of its recent multi-month range of 0.6350-0.6650 with little clear long-term direction. The market will be looking towards NFP at the end of the week to hopefully be a catalyst.

• Current Account Deficits Continue, Net Exports Added 0.1pp. While Q2 recorded its ninth consecutive quarterly current account deficit, it narrowed from Q1 driven by the primary income deficit. Q2 printed at -$13.7bn after $14.1bn with primary income at -$16.8bn down from Q1’s -$18bn but the goods and services surplus was down $1.2bn at $3.1bn, the lowest in 7 years. Net exports contributed 0.1pp to Q2 growth, as expected.
• MNI: RBA November Cut Eyed, Lower Productivity To Pull Down R*. The Reserve Bank of Australia is likely to hold at its September meeting before delivering another 25-basis-point cut to the 3.6% cash rate in November, former staffers and leading economists told MNI, with the Bank’s downgraded productivity outlook expected to weigh on neutral rate estimates over the longer term.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6400(AUD770m). Upcoming Close Strikes : 0.6400(AUD1.12b Sept 5), 0.6500(AUD974m Sept 5), 0.6600(AUD1b Sept 5) - BBG
• CFTC Data last week shows Asset managers continue to add to their shorts -78758(Last -72904), the Leveraged community though again reduced their own shorts -6447(Last -7818).
• AUD/JPY - Asia-Pac range 96.37 - 96.65, Asia is trading around 96.60. The pair is probing above the 96.50 area this morning. A sustained move back above 96.50 would turn the trend higher again but until then sellers should be around looking for this move to top out.

Fig 1: AUD/USD spot 2H Chart

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