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The AUD continues to outperform in the crosses as it reaps the benefits of being a China-proxy. This morning risk is opening up relatively flat in Asia as the market tried to digest the outsized moves from overnight which generally was against how many had been positioned. Expect some intra-day retracement but the broader risk-on move might still have a couple of days to play out as the price action shows the market was not expecting such a positive outcome so quickly.

• EUR/AUD - Overnight range 1.7313 - 1.7462, Asia is trading around 1.7430. EUR/AUD gapped another 120 points lower on the deal announcement  in London, it then spent most of the overnight session clawing back this loss. AUD continues to outperform in this environment in the crosses but expect decent support back towards the 1.70/72 area.
• GBP/AUD - Overnight range 2.0536 - 2.0740, Asia is trading around 2.0690. GBP/AUD like EUR/AUD has clawed back most of its losses overnight. A break back above 2.0800 is needed to signal a base is potentially in and the uptrend is set to resume, first target 2.1000. A sustained break back below 2.0500 is needed to see further unwinding of longs.
• AUD/JPY - Overnight range 93.90 - 94.92, Asia is trading around 94.30. AUD/JPY gapped another 100 points higher on the trade deal announcement in London, unlike the EUR and GBP it has held onto the majority of its gains as risk outperforms. AUD/JPY was seen as the best expression of risk-off and the conviction of the shorts is about to be challenged. The 95.00/96.00 area remains decent resistance, support is now back towards 93.00.
• AUD/NZD -  Overnight range 1.0899 - 1.0849, the cross is dealing in Asia around 1.0875. The Cross has not backed off once since making a low of 1.0654 on the 23/04, it is now challenging the pivot around 1.0900 a sustained break above would turn the focus higher.

Fig 1: AUD/JPY spot Weekly Chart

Source: MNI - Market News/Bloomberg

ACGBs (YM -10.0 & XM -6.0) are sharply weaker after US tsys finished sharply cheaper. US tsys gapped lower in early London trade and stocks surged to the pre-Liberation Day levels (April 2) after the US and China agreed to pause their retaliatory reciprocal tariffs for 90 days.

• After a collective sigh of relief, US tsys traded sideways, near session lows for much of the session. The pop in risk appetite and the less dovish Fed outlook saw the 2-year bond cheapen 12bps to 4.01%, with the 10-year yield 9bps at 4.48%. Today’s focus is on April US CPI figures at 0830ET.
• Cash ACGBs are 6-9bps cheaper with the 3/10 curve flatter and the AU-US 10-year yield differential at -4bps.
• The bills strip has bear-steepened, with pricing -3 to -10.
• RBA-dated OIS pricing is 2-10bps firmer across meetings today. A 25bp rate cut in May is given a 96% probability, with a cumulative 82bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• Today, the local calendar will see Westpac Consumer and NAB Business Confidence measures.
• AOFM plans to sell A$1200mn of the 3.50% 21 December 2034 bond on Wednesday and A$800mn of the 2.50% 21 May 2030 bond on Friday.

TYM5 is trading 110-04+, unchanged from its from its close.

• The US 2-year yield opens around 4.00%, down 0.01 from its close.
• The US 10-year yield opens around 4.463%, down 0.01 from its close
• Bloomberg - “ Investors are avoiding Treasury bills that mature in August due to Treasury Secretary Scott Bessent's warning that the US may run out of cash if the federal debt ceiling isn't raised or suspended by then.”
• “The Treasury's $76 billion auction of three-month bills that will mature in August received tepid investor demand, with a high rate of 4.30% and a small award to indirect bidders.”
• After a significant hawkish re-pricing on positive trade developments, Fed Funds futures imply a next Fed cut coming in July (two meetings away) is only a 50/50 call with it fully priced for September. - MNI US
• The 10-year Yield range seems to be 4.10% - 4.5%, price has bounced nicely off the 4.25/30 support, price is now testing the upper bound of the range around 4.45/50%. A sustained break above this level would see another round of selling targeting the 4.75% area.
• Data: US CPI