JPY: USD/JPY-Moves Through Overnight Lows As USD Struggles & JGB Yields Sink

The AUD/USD has had a range today of 0.6707 - 0.6717 in the Asia- Pac session, it is currently trading around {AUDUSD Curncy}. The AUD continued to consolidate above 0.6700 during our session. The AUD price action has continued to be constructive and stands out should anyone be inclined to express a short USD as it continues to outperform in the crosses. Technically while the AUD remains above 0.6600 dips should continue to find support. On the day, I suspect dips back toward 0.6680-0.6700 could now find buyers initially looking for a test above the 0.6720-30 area which the bulls will be hoping sees momentum return to retest the 0.6750 area, a break above here and the market will start thinking about the 0.6900-0.7000 level next.

• MNI AU: Consumer Sentiment Weighed By Rate Outlook, RBA To Watch Spending: The Westpac consumer sentiment index slipped further in Jan to 1.7% (after a 9.0% fall in Dec last year). This puts the index back to 92.9, roughly where we were in Oct last year. Diminished rate cut prospects appear to be weighing on sentiment. Westpac notes: "The main catalyst continues to be a sharp turn in interest rate expectations. Nearly two thirds of consumers now expect mortgage rates to move higher over the next 12 months, more than double the share back in September." From an RBA standpoint, it's likely to be a watch point, to see if weaker sentiment leads to lower spending outcomes. Hence likely no change to the near term outlook.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6675(AUD540m), 0.6700(AUD1.4b), 0.6710(AUD639m). Upcoming Close Strikes : 0.6600(AUD1.98b Jan16), 0.6640(AUD967m Jan16), 0.6800(AUD2.51b Jan16)- BBG
• The AUD/USD Average True Range for the last 10 Trading days: 42 Points

Fig 1: AUD/USD spot Weekly Chart

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

USD/CNH is holding marginally higher, last near 6.9715/20, with some spill over higher from higher USD/JPY levels likely impacting. However, CNH/JPY continues to make fresh highs above 22.7700, with yen remaining the epicentre of FX weakness in the first part of Tuesday trade. We also had only a modest downtick in the USD/CNY fixing earlier, while the error term widen, which may also be curbing downside interest in the pair on the day. For USD/CNH we arguably need to see a shift back above 7.0000 to drive a re-assessment of near term bearish momentum. 

• Trump's earlier headline around a 25% tariff on anyone doing business with Iran may also be impacting, although the market be awaiting more details before judging the impact of this measure.
• 25% is under the average tariff rate that China currently faces from the US (30.8% per BBG). This fell in 2025 as the two-sides hashed out a trade truce.
• The general bias around risk reversal levels is firmer since the start of the year (perhaps hedging the break under 7.00), although reaction today has been fairly muted, suggesting limited impact from the Iranian/US headlines. It's a similar backdrop across the vol space, 1 month around 2.53%, so still close to recent cycle lows.