US: Trump On China Tariffs, Russia/Ukraine, Secondary Tariffs & Fed Role

The AUD/USD had a range overnight of 0.6486- 0.6519, Asia is trading around 0.6495. The AUD/USD finally found some demand just below 0.6500 and consolidated overnight after moving over 1% lower in reaction to the new set of tariffs sent out. Unlike the price action over the NFP print the USD is reacting to this news and challenging a short market. We have seen this ‘movie’ before and it normally ends with the USD faltering and moving lower again, is this time different ? If there is a deeper correction in risk and the USD can squeeze higher then the risk to the AUD is another test of the 0.6350/0.6400 area.

• MNI RBA Decision - The RBA is widely expected to cut rates today. Market pricing is close to 100% priced for a 25bps cut, while the firm sell-side consensus is for a 25bps cut as well. Inflation outcomes to May look to support the case for further easing, as inflation trends drift towards the centre of the RBA's 1-3% target band. Domestic indicators looked mixed, but shouldn't stand in the way of further easing from the central bank. The outlook presented by the RBA Governor and the board is likely to be of greater interest.
• (Bloomberg) -- “The top funds in Australia’s A$4.1 trillion ($2.7 trillion) pension industry are eyeing opportunities beyond the US, saying stock valuations there look stretched and President Donald Trump’s policies are increasing volatility.”
• The AUD/USD has failed in its attempts to break higher and with the USD finally reacting to market moves the risk of a deeper correction is increasing. First support is around 0.6500 then more importantly the 0.6350/0.6400 area.
• The Momentum higher has been completely lost and price is now back in the 0.6350/0.6550 range with the risk of drifting towards its lower end of the band.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6435(AUD904m), 0.6375(AUD 722m), 0.6545(AUD 493m). Upcoming Close Strikes : 0.6425(AUD700m July 9), 0.6300(AUD866m July 8)
• CFTC Data shows Asset managers pared back their shorts slightly -35992, the Leveraged community maintained their shorts -22903.
• Data/Event: NAB Business Confidence, RBA Cash Rate

Fig 1: AUD/USD spot Hourly Chart

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

• RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
• RES 1: 95.960 - High Apr 7
• PRICE: 95.735 @ 15:20 BST Jul 07
• SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14  
• SUP 2: 95.275 - Low Nov 14  (cont) and a key support
• SUP 3: 94.707 - 1.0% 10-dma envelope

Aussie 10-yr futures traded under pressure for much of the week, keeping prices pressured and within range of the recent pullback lows. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition. To the upside, a recovery of recent losses would shift attention to resistance at 96.207, a Fibonacci retracement point.

TYU5 reopens at 111-00+, up 0-03 from closing levels in today’s Asia-Pac session.

• Overnight the US 10-year yield had a range of 4.3201% - 4.3972%, closing around 4.38%. 
• Treasury yields bounced overnight led by the long-end, which saw the yield curve steepen (2s10s +2.31 at 48.275, 5s30s +3.19 at 95.561).
• MNI: Zero Bound Remains A Medium‑Term Risk - Fed's Williams. The risks that the Federal Reserve's policy rate will be pinned at the zero lower bound remains significant over the medium to long-term due to recent elevated uncertainty, according to a blog published Monday by the president of the Federal Reserve Bank of New York, John Williams, and two other Fed system economists.
• "Former Fed official Kevin Warsh told Fox Business that US interest rates should be lower, adding that the central bank needs “regime change.”- BBG
• The 10-year yield has seen a  strong bounce in reaction to the better NFP print. This 4.35/40% area offers those who would like to express a long the opportunity to fade. A sustained close back above 4.40/4.45% area though would not be great for the bulls and could see more of the longs pared back.