MNI EXCLUSIVE: MNI Discusses The BOJ's Policy Rate View

The AUD/USD has had a range today of 0.7219-0.7252 in the Asia- Pac session, it is currently trading around 0.7230, -0.25%. The US Dollar bounced as Asian Equities looked to be putting in some ugly reversals led by the Kospi which was down over 5% at one point today. The policy chief clarified his Facebook post and we saw most indexes pare back most of their losses. It must be said the move in currencies though did not really bounce and the AUD has remained heavy near its days lows. The market clearly prefers being short US Dollars overall and the AUD is a standout vehicle to express that, albeit with US yields and Oil higher. Tonight we get US CPI which the market will be keenly watching. On the day, while this 0.7170-0.7200 area continues to provide strong support the AUD bulls will remain in control, looking for the move to build momentum. A move back below here and we could drift back into its previous choppy range.

• MNI AU - Fastest Cost Growth Since 2022, Inflation Risk. The April NAB business survey showed the 3-month change in costs and retail prices at its highest since Q3 2022, which was impacted by the Covid-related supply shock. RBA Governor Bullock mentioned last week that the Board is concerned that two periods of high inflation in 5 years could de-anchor inflation expectations especially as inflation was “too high” before the onset of the Iran War. The RBA wants to ensure that economic participants don’t believe that inflation is now “embedded” as petrol prices are easy to remember.
• “Australia plans to curb tax concessions for property investors to address generational inequality and rein in the deficit. The budget is expected to show the underlying cash shortfall narrowing to A$25 billion ($18 billion) by June 2027.” - BBG  
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.7070(AUD442m), 0.7080(AUD471m). Upcoming Close Strikes : 0.7100(AUD1.18b May 13), 0.7200(AUD845m May 13), 0.7350(AUD1.69b May 14) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 52 Points

Fig 1: AUD/USD spot Daily Chart

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

• China's bond market continues to exhibit it's inverse correlation to global moves, even with the rise in April CPI.  
• As global bond yields trend higher overnight with oil, CGB's are edging lower with the 10-YR leading.  
• Markets are cautious ahead of the Trump Xi summit with onshore equity markets lower and the HSI up modestly.  
• Should the summit yield positive trade announcements, CGBs could be seem some mild upward pressure in yields as risk sentiment improves
• Tomorrow sees issuance picking up with a  CNY170bn 1-Yr and CNY34bn 20-Yr ahead of CNY131bn 7-Yr and CNY90bn 10-Yr the following day.  
• Bond futures are up modestly with the 10-Yr up +.05 to 108.72 to consolidate further above all major moving averages.
• The 2-Yr CGB is at 1.272% and the 30-Yr is at 2.277%

The 10-year JGB auction delivered strong results, with the low price beating expectations at 98.79, according to the Bloomberg dealer poll. Moreover, the cover ratio increased to 3.9039x from 2.5651x. The tail also shortened dramatically to 0.03 from 0.36.

• This performance came with an outright yield that was 20bps above the level of last month's auction and at a fresh cycle high.
• The 2s/10s yield curve was ~15bps steeper than last month's auction and at a cycle high. By contrast, the 7s/10s curve, a measure of value between JB1 futures and the 10-year, was little changed from last month and sat comfortably inside the past year's range.
• In early afternoon Tokyo trading, the cash 10-year and JGB futures are dealing little changed.