AUSSIE 10-YEAR TECHS: (Z5) Reversal Lower Extends

NZGB yields are biased higher in the first part of Tuesday trade, led again by the back end. The 2yr NZGB yield was little changed and last near 2.965%, while the 10yr is up close to 2bps, tracking towards 4.38%. 

• US Treasury futures dealt mildly cheaper at the early close for Labor Day on Monday, after an unsurprisingly quiet session. Sell-off cues were taken from some mild weakness in EGBs on supply grounds. We have re-opened this morning with a negative bias, which may be aiding the NZGB yield backdrop.
• For 2yr NZGB, focus will remain on whether we can re-capture the 3% handle. Beyond this, pre-RBNZ highs were above 3.20%. For the 10yr yield we close to 4.50% in terms of pre RBNZ highs.
• The NZ 2yr swap rate is edging higher, last around 2.74%.
• Q2 terms of trade data are out today, which includes trade volumes, are released on Tuesday and expected to rise 1.9% q/q. 

TYZ5 reopens at 112-12, down 0-04 from closing levels in today’s Asia-Pac session.

• Overnight the TYZ5 contract had a range of 112-09+ - 112-13, closing around 112-11+ down 0-05. 
• US (MNI): Trump May Declare National Housing Emergency In Fall - Bessent. US Treasury Secretary Scott Bessent told the Washington Examiner that President Donald Trump may declare a 'national housing emergency' this fall to address rising house prices. The Washington Examiner notes that there hasn't been a national housing emergency declared since the 2008 recession.
• Bloomberg: “Wall Street will be bracing for a crucial stretch, with jobs numbers, inflation data and the Fed’s rate call all landing within the next three weeks, and swaps markets are pricing in roughly 90% odds that the Fed will cut them at this meeting.”
• 10-Year Yields continue to find supply toward the 4.20% area, which signals the range might continue to dominate. A break of the recent lows around 4.18% would bring the bottom of the range towards 4.10% back into focus.

The AUD/USD had a range overnight of 0.6535-0.6560, Asia is trading around 0.6555. The AUD again drifted higher but without any real momentum. The AUD finds itself firmly back in the middle of its recent multi-month range of 0.6350-0.6650 with little clear long-term direction. The market will be looking towards NFP at the end of the week to hopefully be a catalyst.

• MNI: RBA November Cut Eyed, Lower Productivity To Pull Down R*. The Reserve Bank of Australia is likely to hold at its September meeting before delivering another 25-basis-point cut to the 3.6% cash rate in November, former staffers and leading economists told MNI, with the Bank’s downgraded productivity outlook expected to weigh on neutral rate estimates over the longer term.
• (Bloomberg) -  “Australia’s No. 2 Pension Cuts Treasuries Bet on Rising US Risks. Australian Retirement Trust Pty is underweight US bonds due to concerns that Washington's policies may stoke inflation. The fund's senior portfolio manager Jimmy Louca says there's better value elsewhere, such as in the UK and Australia. Louca is also bearish on the dollar and prefers currencies such as the yen, and even gold, due to the policy mix coming out of the White House.”
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6400(AUD770m). Upcoming Close Strikes : 0.6400(AUD1.12b Sept 5), 0.6500(AUD974m Sept 5), 0.6600(AUD1b Sept 5) - BBG
• CFTC Data last week shows Asset managers continue to add to their shorts -78758(Last -72904), the Leveraged community though again reduced their own shorts -6447(Last -7818).
• Data/Event: Current Account Balance

Fig 1: AUD/USD spot 2HChart

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