AUSSIE 10-YEAR TECHS: (H6) Found Bottom?

• RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
• RES 2: 95.960 - High Apr 7 (cont.)
• RES 1: 95.900 - High Oct 17
• PRICE: 95.275 @ 16:26 GMT Jan 12
• SUP 1: 95.120 - Low Dec 10
• SUP 2: 95.087 - 2.0% Lower Bollinger Band
• SUP 3: 94.276 - 1.0% 10-dma envelope

Aussie 10-yr futures remain well toward the bottom of the recent range, having taken out all major support levels in the process. With 95.275 cleared, prices are pushing to new contract lows, opening vol-band support through 95.087 and into 94.276. Any recoveries need to break back above 95.900 to signal near-term bullish traction.

Spot USD/CNH got to fresh lows of 6.9628 in Monday trade (levels last seen in the first half of 2023), amid broader USD softness as Fed independence concerns crept back into the market. We track just under 6.9700 in early Tuesday dealings, with a downtrend in the pair still intact. Note we have crept back into oversold conditions per RSI (14) (latest read around 28.3), but upticks in the pair are likely to remain sold. The 20-day EMA resistance point is under 7.0000, which is also close to earlier 2026 highs. Downside focus is likely to rest around 6.9500, then potentially 6.9000. Spot USD/CNY finished up at 6.9731, while the CNY CFETS basket tracker rose further to 98.64, fresh highs since early April last year. 

• Amidst a downtrend in the USD/CNY fixing and potentially positive January yuan seasonality, risks for USD/CNH remain skewed lower, despite reaching oversold status per RSI. The yuan stands to benefit from diversification flows amid fresh Fed independence concerns.
• The USD/CNY fixing will remain in focus for signs of pushback on the stronger yuan bias, although recent error terms are sub wides.
• Our China policy team noted late yesterday: China should allow the yuan to trade with greater flexibility, giving market forces a larger role, as Beijing continues its push to boost international use of its currency, said Huang Yiping, a member of the People’s Bank of China’s Monetary Policy Committee.  Foreign-exchange policy needs to become more flexible, and if market pressure for yuan appreciation intensifies, regulators should allow market forces to play a greater role, Huang argued.
• On the data front we still await Dec new loans/ aggregate finance data, while tomorrow Dec trade figures are due. 

ACGBs (YM flat& XM +1.0) are little changed after cash US tsys finished slightly weaker on Monday amid uncertainty over future Federal Reserve independence. This came after the DOJ announced it's investigation of Fed Chairman Powell over the weekend related to his testimony before the Senate Banking Committee last June.

• Geopolitical tensions continue to heat up (or at least simmer) after the US attack on Venezuela, followed by threats to Iran and Greenland.
• Cash ACGBs are flat to 1bp richer with the AU-US 10-year yield differential at +51bps. A simple regression of the 10-year yield differential against the AU–US 1-year forward 3-month (1Y3M) swap spread over the past two years suggests the current spread sits at its regression-implied fair value.
• The bills strip is flat to -2 across contracts.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 33% for February to 96% by June and 140% by December 2026.  
• Today, the local calendar will see Westpac Consumer Confidence.
• This week, the AOFM plans to sell A$300mn 4.75% 2054 bond on Tuesday, A$1bn 4.25% 2036 bond on Wednesday and A$700mn 3.25% 2029 bond on Friday.

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Bloomberg Finance LP / MNI