AUSTRALIA DATA: Inflation Expectations Back Below 4%

The BBDXY range overnight was 1198.80 - 1205.12, Asia is currently trading around 1201. The USD again fell very easily overnight, aided by the move lower in US yields. The market is much more comfortable selling USD’s, while below 1220 rallies will continue to find supply. Only above there would the Bears have to start questioning potentially paring back.

• China Daily -  “Reports that it is a 'strategic necessity' for the scaling back of holdings in US Treasuries, given the declining confidence in the dollar as the reserve global currency.”
• Robin Brooks on X: “Markets price 125 bps in cuts from the Fed through the end of next year. That's way more easing than markets price for any other G10 central bank. Kind of bonkers when you consider that tariffs are inflationary for the US and deflationary for everyone else. Dollar bullish...”
• (Bloomberg) - On Monday, the three-month cross-currency basis for euros versus dollars rose to 1.625 bps — the most since at least the market gyrations of early 2020 and the onset of the Covid-19 pandemic, according to aggregated Bloomberg data. This shows the dollar trading at the biggest discount to the euro in more than five years, signaling softer appetite for the greenback — at least for the moment.”
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
• Data/Events : Philly Fed Non-Man., Richmond Fed Manu. Index & Business Conditions

Fig 1: BBDXY Daily Chart

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

• The PBOC issued CNY214.8bn of 7-day reverse repo at 1.4% during this morning's operations.
• Today's maturities CNY342.5bn
• Net liquidity withdrawal CNY127.7bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.41%, from prior close of 1.49%.
• The China overnight interbank repo rate is at 1.30%, from the prior close of 1.25%.
• The China 7-day interbank repo rate is at 1.45%, from the prior close of 1.50%.

In Tokyo morning trade, JGB futures are stronger and just below highs, +35 compared to overnight closing levels on Friday.

• Today, the local calendar will be empty, ahead of tomorrow's 40-year supply.
• Cash US tsys are slightly stronger in today’s Asia-Pac session after yesterday’s rally.
• Cash JGBs are 2bps lower to 3bps higher across benchmarks, with a steepening bias. The benchmark 40-year yield is 2.6bps higher at 3.397% versus the cycle high of 3.692%.
• (Bloomberg) -- Overseas investors ramped up purchases of Japanese government bonds last month, pushing their quarterly acquisitions of super-long tenors to a record, according to data released by the Japan Securities Dealers Association on Tuesday.
• (Bloomberg) -- Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management, said "Concerns over fiscal expansion continue to simmer in the market, and in light of the election results, JGBs could come under selling pressure".
• Swaps have bull-flattened, with rates 2-3bps lower. Swap spreads are tighter.