AUSSIE BONDS: Holding Weaker But Up From Lows, 3yr Yield Back Around Cash Rate
Aussie bond futures are holding losses, but are away from session lows. Some support likely emerging from the drift in US Tsy futures. JGB futures are also higher post the on hold BoJ outcome (which gave few hints around hike timing). Broader risk focus is on the Trump-Xi meeting, which has just concluded. Trump is making positive comments around the outcome of the meeting, although broader risk appetite is still skittish.
- 3y futures were last 96.38, off 5bps and around late Sep/earlier Oct lows. Session lows were at 96.335. 10yr futures were last 95.69, -7.5bps, (against session lows of 95.645).
- Like the NZGB space, ACGB yields are away from earlier highs. We are still 3-7bps higher, led by the back end. The 3yr yield is back around 3.60%, so in line with the RBA cash rate. Earlier highs were through this level (near 3.64%).
- The AU-US 10yr spread is holding higher, last +23bps. Upside focus will remain on recent highs beyond +30bps.
- RBA pricing has little easing risks priced into year end, while a full cut is not priced until August next year.
- Tomorrow is Q3 PPI, along with Sep private sector credit.
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AUSSIE BONDS: Cheaper After RBA Policy Decision
ACGBs (YM -5.5 & XM -1.0) have bear-flattened to session cheaps after the RBA leaves the cash rate unchanged at 3.360%, as widely expected.
- The RBA unanimously set the cash rate at 3.60%, stressing its commitment to achieving price stability and jobs growth. The board judged it appropriate to remain cautious given uncertainties. The housing market is strengthening, private demand is recovering faster, and domestic economic activity is rebounding, though the outlook remains uncertain. Labour market conditions are tight with low underutilisation, but productivity growth is weak. Inflation uncertainty persists, with recent data suggesting third-quarter inflation may be higher than expected, while underlying inflation’s decline has slowed. The RBA affirmed its policy is well placed to respond decisively to global events.
- Cash US tsys are slightly cheaper, with a slight steepening bias, in today's Asia-Pac session after yesterday's bull-flattener.
- Cash ACGBs are 1-5bps cheaper with the AU-US 10-year yield differential at +20bps.
- The bills strip is -5 to -7 across contracts.
- RBA-dated OIS pricing is 2-6bps firmer across meetings after giving a 25bp rate cut today a 3% probability. A cumulative 12bps (17bps pre-RBA) of easing is priced by year-end.
- Tomorrow, the local calendar will see Cotality Home Values and S&P Global PMI Mfg (F).
- The AOFM plans to sell A$1200mn of the 3.50% 21 December 2034 bond.
AUD: Asia Wrap - AUD/USD Drifts Higher Then Pops To Test 0.6600 On RBA
The AUD/USD has had a range of 0.6571 - 0.6603 in the Asia- Pac session, it is currently trading around 0.6600, +0.35%. The USD can’t find any friends and a potential shutdown has brought out all the bears again. The AUD drifted higher in sympathy, the RBA left rates unchanged and gave the pair an extra bump up to test 0.6600. I suspect some resistance back towards the 0.6600/0.6625 area initially. The Payrolls data this week was to be critical so should we not get it due to a shutdown the ADP print could take on larger significance.
- "RBA SAYS HOUSING MARKET STRENGTHENING, BOARD JUDGED APPROPRIATE TO REMAIN CAUTIOUS. SAYS LABOR MARKET CONDITIONS REMAIN A LITTLE TIGHT. RECENT DATA SUGGEST 3Q INFLATION MAY BE HIGHER THAN SEEN, SAYS DECLINE IN UNDERLYING INFLATION HAS SLOWED." - BBG
- "AUSTRALIA AUG. PRIVATE CREDIT RISES 7.2% Y/Y, AUSTRALIA AUG. PRIVATE CREDIT RISES 0.6% M/M; EST. +0.6%" - BBG
- "AUSTRALIA AUG. BUILDING APPROVALS FALL 6.0% M/M; EST. 2.6%, AUSTRALIA AUG. PRIVATE-SECTOR HOME APPROVALS FALL 2.6% M/M" - BBG
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6417(AUD597m), 0.6600(AUD820m), 0.6800(AUD525m). Upcoming Close Strikes : 0.6600(AUD1.5b Oct 3), 0.6600(AUD1.7b Oct 2), 0.6700(AUD1.64b Oct 1) - BBG
- CFTC Data last week shows Asset managers added back to their recently reduced shorts, -48580(Last -41095). The Leveraged community did likewise, -6358(Last -1519).
- AUD/JPY - Asia-Pac range 97.70 - 98.08, Asia is trading around 98.00. The pair found solid demand back towards 97.00 and bounced last week with the help of the AU CPI print. While above 97.00 the focus will remain on September’s highs toward 98.50.
Fig 1: AUD/USD spot 2HChart
Source: MNI - Market News/Bloomberg Finance L.P
OIL: Crude Continues Trending Lower, Focus On Supply Outlook
After falling over 3.5% on Monday, oil has continued falling during Tuesday’s APAC session as the market’s attention returns to excess supply concerns. WTI is down 0.6% to $63.09/bbl after rising to $63.21 and then falling to $62.91. Brent (December) is also 0.6% lower at $66.68/bbl off the intraday trough of $66.52 which followed a high of $66.82. The USD index is flat.
- The focus has returned to supply following flows from Iraqi Kurdistan to Turkey resumed on the weekend after being halted for around two and a half years. Thus, the upcoming 5 October OPEC+ meeting is of particular interest and it is currently expected to increase November production by at least 137kbd in line with October. While the group wants to increase market share, there is little material spare capacity amongst members, except Saudi Arabia.
- An increase in inventories is a sign of excess supply. US industry-based data is released later on Tuesday.
- Later the Fed’s Jefferson, Collins, Goolsbee, Logan, ECB’s Lagarde, Elderson, Machado, Cipollone and BoE’s Mann, Lombardelli and Breeden speak. US July housing data, August JOLTS job openings, September MNI Chicago PMI and Conference Board consumer confidence as well as German August retail sales, unemployment and preliminary German/Italian September CPIs are released.
