AUSSIE BONDS: Modestly Richer After Employment Data

ACGBs (YM -5.0 & XM -6.0) are weaker and near session cheaps.

• Westpac's consumer confidence is trending towards the breakeven 100-level. Sentiment rose 5.7% m/m to 98.5 in August, the highest since February 2022, before the last tightening cycle began. The RBA's third rate cut this year on August 12 helped to boost confidence but the improvement was not just seen amongst mortgage holders. Governor Bullock also pointed out that further easing is consistent with inflation at the target mid-point.
• Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's modest losses.
• Cash ACGBs are 5-6bps cheaper with the AU-US 10-year yield differential -1bps.
• The bills are -1 to -7, with the strip steeper.
• RBA-dated OIS pricing is firmer across meetings today. A 25bp rate cut in September is given a 27% probability, with a cumulative 34bps of easing priced by year-end (based on an effective cash rate of 3.59%).
• Tomorrow, the local calendar will be empty.
• This week, the AOFM plans to sell A$1500mn of the 1.25% 21 May 2032 bond on Wednesday and A$300mn of the 4.75% 21 June 2054 bond on Friday.

Oil prices have continued their downtrend after stabilising Monday after talks between Presidents Trump and Zelenskyy and European leaders appear to have been constructive with most sounding positive, although President Macron sounded sceptical that President Putin wants peace. A peace deal would likely result in an easing of sanctions on Russia which could see an increase in global oil supplies at a time of a significant market surplus. 

• WTI is down 0.7% to $62.97/bbl (initial support at $61.94), close to the intraday low, while Brent is 0.6% lower at $66.17, above support at $65.01.
• A meeting between Zelenskyy and Putin could happen before the end of August with another including Trump to occur thereafter. He agreed that discussions of territory were between Ukraine and Russia, while security for Ukraine will principally be provided by Europe but the US will also be “involved” with Trump saying that “we’ll give them good protection”.
• US threats to impose punitive tariffs on those who buy Russian oil currently appear shelved but if that remains the case will depend on how Russia negotiates.

The BBDXY has had a range of 1205.00 - 1207.00 in the Asia-Pac session, it is currently trading around 1205, +0.05%. The USD found some demand as the market pares back some risk as we head into Jackson Hole at the end of the week. A sustained break below 1197/1195 is needed to regain the momentum lower and retest the year's lows, but risk is more likely skewed to the USD shorts continuing to be reduced into Powell's speech.

• EUR/USD -  Asian range 1.1639 - 1.1675, Asia is currently trading 1.1655. The market is trading sideways in a 1.1600-1.1750 range heading into Jackson Hole. The pair is unlikely to break out as await Powell's speech.
• GBP/USD - Asian range 1.3487 - 1.3514, Asia is currently dealing around 1.3500. Having broken back above its pivot look for dips to again be supported, first support seen now back towards 1.3400/1.3500.
• USD/CNH - Asian range 7.1854-7.1919, the USD/CNY fix printed 7.1359, Asia is currently dealing around 7.1860. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
• Cross asset : SPX -0.20%, Gold $3337, US 10-Year 4.34%, BBDXY 1205, Crude Oil $62.95
• Data/Events : EZ ECB Current A/C, Italy Current A/C

Fig 1: BBDXY Spot 2H Chart

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