GOLD: Gold Range Trading As Watches Data & Geopolitical Risks Shift

Friday's delayed release for September CPI was in line with expectations, with the month on month figure moderating more than expected at +0.3% from +0.4% prior.  The CORE CPI MoM also softened at +0.2% from +0.3% and for many this re-affirmed the expectations for rate cuts at this week's meeting and meetings to come yet this year.  

The US 10-Yr bond future did very little Friday, closing off the week at 113-14.  It has started the trading week in Asia weaker, down -0.06+ at 113.07+.

• The US 2-Yr finished the Friday session down a further basis point at 3.48% as the CPI suggests that this week's cut is a done deal.  
• The US 5-Yr ended the week at 3.60%, -1bps for the day yet +1bps for the week.  
• The US 10-Yr broke below the 4.00% mark last week and held for 3 successive days but has been unable to sustain this new range, slipping back marginally above 4.00%.  I has traded in the 4.00-4.20% for some time and seems anchored to that for now.
• The US 30-Yr inched higher in yield Friday to 4.59% having given back the strong rally from mid-week that saw it at 4.53%.  

With this week's cut now considered a done deal by many, the focus for investors from the FED meeting will be guidance on the FED's intention for reducing the size of the central bank's portfolio of securities, accumulated over recent cycles.  The FED started reducing the size of the balance sheet from 2022 and is down over $2 trillion and Jerome Powell is expected to provide further guidance this week.    The key risk remains the ability of the FED to navigate the reduction without distorting the money markets through skyrocketing money market rates.  The early part of this week sees significant bill issuance from the US, seen as a test ahead of the FED guidance.  

Aussie bond futures are lower to start the week. For the 3yr Aussie future we are 4bps lower to 96.58, while the 10yr is down 4.5bps to 95.80. Cash ACGB yields are 4.5-5bps higher, led marginally by the back end. These benchmarks are looking to re-establish higher yield range levels that prevailed in recent months. Weekend news around positive US-China trade talks, along with lack of upside in US Tsys on Friday, aiding the moves so far today. The risk on tone is seen in the US equity futures space, up +0.65% for Eminis, while US Tsy futures are 7 ticks lower for the 10yr as markets re-open.

• For the 10yr future, it may be difficult to break above recent highs around 95.90 in the near term. Key EMAs are at close to 95.70 on the downside, while early Sep lows near 95.50 are a notable support point. It's a similar backdrop for the 3yr, although key EMAs are closed, the 50-day around 96.54.
• In the cash space, the 3yr is back above 3.40%, and looking to establish itself back in a 3.40-3.60% range, while the 10yr may eye  a break back above 4.20% (last 4.185%).
• The bias in the AU-US 10yr spread should be higher, given Aussie bond yield sensitivity to China related news. Still, selling interest in the spread has been fairly consistent around the +30bps level.
• The AU 3/10s curve remains little changed last near +77bps.
• The data calendar is quiet until Wednesday's Q3 CPI print. The market expects a 3.0%y/y headline (prior 2.1%), but the trimmed mean is forecast unchanged at 2.7%y/y.
• Note we have RBA Bullock giving a Fireside chat this evening (7:15pm AEDT) at the ABE dinner. This is the final RBA remarks ahead of the board meeting next week. Focus will be on whether easing risks are back in focus in light of the recent move up in the unemployment rate. Market pricing is around 55% chance of a 25bps cut, up from recent lows beyond 70% chance priced. 

Aussie and kiwi received support from two key events – the better-than-expected US September CPI data and news that a draft US-China trade deal has been reached with it expected to be agreed by Presidents Trump and Xi when they meet on Thursday. It includes a year’s delay to China’s rare earths licensing regulations and should mean that the additional 100% US tariff won’t be imposed on November 1. The USD index finished slightly higher.

• AUDUSD jumped to a high of 0.6529 on Friday following US CPI printing at 3.0% - 0.1pp below consensus. It then rose to 0.6547 on the US-China trade news and is currently up 0.3% to 0.6534. It hasn’t held the break above the 50-day EMA at 0.6543. The pair remains in consolidation mode.
• NZDUSD reached 0.5774 after the US data before settling between 0.5745/0.5750. Monday it made a high of 0.5788 and is now 0.4% higher at 0.5774.
• With both AUDUSD and NZDUSD close to flat on Friday AUDNZD was slightly higher at 1.1330. The pair traded in a narrow range through Friday of 1.1300/1.1333. It has started today’s trading around 1.1319 after initially rising to 1.1341.
• Stronger equities also provided support with the S&P up 0.8% and Euro stoxx +0.1%. Oil prices were lower with Brent -0.5% to $65.69/bbl. Copper was up 0.1% and iron ore is around $104/t.
• Later on Monday RBA Governor Bullock participates in a fireside chat at the ABE dinner at 1915 AEDT. There are no data in Australia or NZ on Monday with the latter closed for a holiday.