CNH: USD/CNH Eyeing 6.6700 Downside Test, Still Oversold, Yuan Reforms In Focus

US Tsy futures have opened with a modestly firmer bias in early Tuesday dealings. We were last 106-04, +02+, for the TYZ6, with dips under 106 still generating support. Market focus overnight was firmly on oil price shifts/geopolitical hopes. Oil benchmarks fell over 3% driven by hopes that diplomacy on the sidelines of this week's UN summit will result in safer passage of energy shipments from the Middle East. WTI futures are little changed in the first part of trade today. US Tsy benchmark yields were flat to 4.5ps lower in Monday trade, led by the back end. The 10yr ending around 4.95%. Note Japan markets remain out today, returning on Thursday. 

• Overnight, Fed commentary was mixed, with near-term rate hike probabilities virtually unchanged on the day (14bp priced through Oct, 33bp through Dec). St Louis's Musalem, one of the FOMC's most hawkish members, told Reuters that he eyed "further policy restraint"...earlier and incremental policy firming is better and less disruptive than later and larger and potentially more abrupt policy action". More dovishly, Chicago's Goolsbee commented that "I remain relatively optimistic" on getting inflation back to the 2% target.
• One interesting contrast that indicated relative comfort in making further hikes: Musalem suggested that the labor market did not necessarily need to slow in order for inflation to return to target, but Goolsbee warned that monetary tightening "won't be painless".
• The data and Fed speaker schedule gets a little busier Tuesday, with regional Fed activity reports (Richmond, Philly), weekly ADP payrolls, and the US Treasury Market Conference bringing appearances by NY's Williams, SOMA manager Perli, and Gov Jefferson (separately we hear from Richmond's Barkin). Additionally, Treasury sells $69B in 2Y Note at auction.

MNI interviews Bank of Canada Governor in two-part interview on monetary policy, economy  -- On MNI Policy MainWire now, for more details please contact sales@marketnews.com. 

Key focus today for Aussie bond markets is RBA Governor Bullock's fireside chat at the CEDA function. Via the RBA: "Fireside Chat with Michele Bullock, Governor, at the Committee for Economic Development of Australia (CEDA), Sydney", which will be held at 1pm local time (AEST). Her comments can be followed at this link. This comes as next week's RBA meeting has a 25bps hike around 92% priced in. Remarks from Bullock before parliament last Friday did little to push back on hawkish market pricing (another full hike is priced by the Feb 2027 meeting per OIS markets). Focus is likely to rest with tightening risks beyond next week's meeting, given a number of sell-side view points see double tightening risks before year end but that isn't fully priced by OIS markets yet. 

• Elsewhere, Aussie bond futures are higher in the first part of Tuesday trade, led by the back end, +1.5-+2.5bps higher. This puts the 10yr last near 94.72 (+2.5bps), while the 3yr is currently 95.025 (+1.5bps).
• This follows a positive overnight session for UST futures, with focus on oil price moves/geopolitical developments - oil benchmarks fell over 3% driven by hopes that diplomacy on the sidelines of this week's UN summit will result in safer passage of energy shipments from the Middle East. UST futures are biased higher in the first part of Tuesday trade, TYZ6 up +02+ to 106-04, albeit still close to key support around the 106 level (which has marked recent lows). WTI futures are little changed in the first part of trade today.
• For Aussie futures, levels to watch for the 10yr are 94.515 support, which was the Sep 15 low. Late Aug highs were just above 94.80. For the 3yr, recent lows rest at 94.875. The 20-day EMA is around 95.13 currently. ACGB yields are down around 1-2bps in the first part of Tuesday trade, post UST yield weakness Monday.  
• The AU-US 10yr spread is relatively steady at +31bps, albeit towards the bottom end of recent ranges.