FOREX: JPY Slippage Extends, USD Rally Contained by Lower Long-End
Oct-08 09:28
- The greenback is higher against all others in G10 headed through to the NY crossover, however the further fade for the US 10y yield across the European morning has contained further strength. The RBNZ 50bps rate cut, further political uncertainty in Japan & France, and a tax collection revision in the UK have been the primary market drivers.
- NZDUSD hit the lowest levels since April and is eyeing a test of next support at 0.5728, the 61.8% retracement of the April/July range as the RBNZ stated “the Committee remains open to further reductions in the OCR” following their outsized cut to prop up the lacklustre domestic economy.
- Meanwhile, JPY weakness continues to run further than market expectations, boosting USDJPY for a fifth consecutive session to hit 152.89. Market moves follow the softer real wages data - which endorse Takaichi's preference for slower rate hikes, however government formation is still the active driver as coalition talks with Komeito continue, delaying the reconvening of the Diet. For USDJPY, this week’s gains reinforce current bullish trend conditions, with technical breaches paving the way for an extension towards 154.39, a Fibonacci retracement point. Initial support to watch lies at 150.92, the Aug 1 high.
- EURGBP meanwhile is edging to new daily lows, despite the tightening of the French-German bond yield spread and seeming optimism of PM Lecornu that a budget agreement can be reached in the near-term. This has pressed through the 50-dma of 0.8676, which had successfully provided intraday support on three occasions over the past month, putting attention on 0.8597, the Aug 14 low. The break lower here stems from the reduction in UK borrowing estimates following ONS VAT revisions this morning - adding to the view that the worst may be behind us for the longer-end of the UK Gilt market headed into November's Budget.
- Focus turns to the Fed meeting minutes, which should shed light on the FOMC's pre-shutdown thoughts on the US economy and policy into year-end. Speakers still due include ECB's Elderson, BoE's Pill and Fed's Musalem, Barr, Goolsbee & Kashkari.
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FOREX: Aussie Benefitting from Post-Payrolls Backdrop, AUDJPY Resistance Nears
Sep-08 09:26
- Firmer equity sentiment since the open has allowed the likes of AUD and NZD to outperform in G10 currency markets on Monday, capitalising on the bearish dollar sentiment following the softer-than-expected US employment report.
- As a result, AUDUSD (+0.41%) has traded within one pip of the Friday highs and the latest price action has helped the pair consolidate above short-term resistance of 0.6569, which was cleared last week. This places the market’s interest back on the 0.66 handle, of which we have only had one daily close above since the US election related volatility back in November 2024.
- Key resistance and the bull trigger are located at 0.6625 (Jul 24 high), of which a breach would strengthen the underlying bullish trend. The next targets for the move would be 0.6688 (Nov 07 high) and 0.6700, the 76.4% retracement of the Oct-Apr selloff.
- Japanese politics has also boosted AUDJPY (shown below) by a solid 0.62% today, with the cross hovering once again below some important chart levels. A break of 97.43 would place the cross at the highest levels since January. The 2025 highs come in at 99.17.
Source: Bloomberg Finance L.P. / MNI
BONDS: Japanese Investors Bought JPY2.6trln of USTs In July
Sep-08 09:06
Japanese investors purchased JPY2.6trln worth of US Treasuries in July, according to latest Balance of Payments data, more than unwinding the JPY605bln of net sales seen in June. Year-to-date, Japanese investors have purchased JPY5.6trln of USTs.
- It highlights that despite ongoing US political/trade policy uncertainty and Fed independence concerns, there aren’t many alternatives to US assets for a country with as large a current account surplus as Japan (almost 5% of GDP as of Q2 2025). A reminder that the current account surplus must by definition be balanced by capital outflows in the form of direct/portfolio investment abroad (alongside other financial account components).
- Elsewhere, Japanese investors purchased around JPY335bln of German and French bonds in July.
- Over the next few months, it will be interesting to see if French flows are impacted by the latest uptick in political uncertainty. After President Macron called snap French legislative elections in May 2024, Japanese investors became notable sellers in OATs (see charts).
- Japanese investors sold JPY308bln of BTPs in July, while continuing to be steady net buyers of Gilts. Like France, it remains to be seen how Gilt flows are impacted by recent political developments ahead of the Autumn budget.
IRELAND BOND AUCTION PREVIEW: On offer this week
Sep-08 09:04
Ireland has announced it will be looking to sell a combined E1.0-1.5bln of the following at its auction this Thursday, September 11:
- the 2.60% Oct-34 IGB (ISIN: IE000LQ7YWY4)
- the 3.00% Oct-43 Green IGB (ISIN: IE000GVLBXU6)
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