CNH: USD/CNY Fixing Moves Higher, Error Term Close To Unchanged

• CHINA SETS YUAN CENTRAL PARITY AT 7.1359 TUES VS 7.1322

In Tokyo morning trade, JGB futures are holding weaker, -11 compared to settlement levels.

• The local calendar is empty today apart from 20-year supply.
• (Bloomberg) “Japanese bond traders need to navigate a tricky 20-year auction on Tuesday, but things could get very lively if the one-year bill sale, also today, produces poor metrics. Should that arise, it would trigger a ramp up in the odds of a Bank of Japan rate hike at the September meeting.”
• Cash US tsys are slightly richer in today’s Asia-Pac session after yesterday’s modest losses.
• Cash JGBs are flat to 3bps cheaper, with a steepening bias, across benchmarks. The benchmark 20-year yield is 1.1bps higher at 2.582% versus the cycle high of 2.655%.
• Swap rates are little changed, with swap spreads tighter.

The BBDXY range overnight was 1202.11 - 1206.08, Asia is currently trading around 1205. 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.

• (Bloomberg) - As Jackson Hole steams into view, the bar for dovish rhetoric is high, lending a crucial pillar of support to the listless greenback. After a historically rough first half, the dollar has steadied and is drifting as expectations for Fed easing fluctuate.
• Santiago Capital on X: “Leaving the gold standard and the subsequent oil for $ agreement with KSA was the equivalent of playing an Uno Reverse card which changed Triffins Dilemma from a U.S. problem to a Rest of the World problem. “Our currency but your Problem” has never been more true than today.” 
• (Bloomberg) -- Currency strategists at Goldman Sachs & Co. expect a buildup in short dollar positions and implied volatility, with bearish pressures continuing to weigh on the US currency. “The macro catalysts are already in place for a clearer continuation in the dollar-weakening trend,” wrote a Goldman Sachs team. “That can prompt a building back out of short dollar positioning, which would come alongside upward pressure on implied vols.”
• There is a broad consensus that the USD is set to embark on a decent move lower as the world reduces its exposure to the US and repatriates a lot of these flows. This consensus will also result in some decent short squeezes as a lot of the market is positioned the same way.
• Data/Events : Housing Starts, Building Permits

Fig 1: BBDXY 2H Chart

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