The USD has firmed up slightly, tracking a modest recovery in long-end US Treasury yields. As we expected, DXY is consolidating around 99 following the US Treasury’s announcement of an expansion of long end bond buybacks. Without any meaningful change to the US fiscal trajectory (given that the US budget is set by Congress and not the Treasury), tweaks around buybacks can only have a small, transient impact on markets. Meanwhile, an expected tightening of US sanctions on Iran to be announced on Monday could pose unintended consequences, including risks of bolstering inflation expectations that lift both US yields and the USD.
USD/JPY has recovered to 159, negating losses following the US Treasury’s announcement on buybacks. JPY has noticeably lagged the KRW in recent weeks, with JPY/KRW tumbling towards 2024 lows around 8.70. While the BOJ has not been as hawkish as the BOK, it is now likely to be more confident on rate hikes amid inflationary pressures from strong external demand and a planned domestic investment push by PM Takaichi. Japan’s CPI inflation for July was reported at 1.9% y/y (prev: 1.6%), suggesting that underlying prices pressures are notable despite an expansion of fuel subsidies this year.
AUD/USD held above 0.71 despite weaker than expected Australian jobs data yesterday. Australia saw 15.8k job losses in Jul, in contrast to analysts’ expectations for a 12k jobs increase. The unemployment rate also inched up to 4.5% in July from 4.4% previously. RBA Governor Bullock’s speech today will be watched for clues on whether the Bank will still prioritize inflation risks given a softening of the labour market.
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