A$ Off Earlier Highs, But Still Outperforming NZD

AUD/USD hasn't seen any large reaction to the RBA minutes. The pair is drifting lower, testing below 0.6720 but without a great deal of follow through. We are comfortably off earlier highs close to 0.6750, in line with US equity futures paring gains.

• The RBA minutes have likely been superseded by recent Lowe commentary. The broad consensus appears to be shifting towards a 50bps hike at the October meeting.
• This is isn't driving much of a turnaround in the bond yield differential though. The AU-US 2yr spread is still close to recent wides (last -78bps). As we noted earlier the correlation with AUD moves has been weaker with spreads over recent weeks.
• On a cross basis, AUD/NZD continues to see gains. The pair pushing to fresh cyclical highs above 1.1300.
• There isn't much sponsorship for the move from a yield or swap differential standpoint, at least from a short term standpoint. This comes despite some of the hawkish shifts from local AU banks in recent sessions. The 2yr AU-NZ swap spread is slightly wider on levels compared to a week ago.
• Underlying flow momentum remains supportive though.