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Pelosi Plane Trip Drives Bond Yields Lower

FOREX
  • The JPY trades on the front-foot, extending the recent rally to put USD/JPY at new pullback lows. The pair is narrowing in on the next key support at the 100-dma of 130.24, a level last crossed in September 2021. The JPY continues to rally alongside rate differentials, with the US 10y yield slipping further to near 2.50% - a level last crossed in early April.
  • The driver behind the move continues to be a rippling of tensions between the US and China as the House Speaker Pelosi heads toward Taiwan for a rumoured formal visit. Chinese authorities have warned of considerable pushback should the visit take place, even including military options.
  • Equity markets are suitably lower to match the risk-off theme in currency and bond markets, with the e-mini S&P back below 4,100 and the 100-dma.
  • AUD is the poorest performer so far Tuesday, despite the RBA's rate hike overnight, with the bank pointing toward a slower pace of rate hikes going forward. The hike to 1.85% puts rates at their highest levels since 2016, but the data dependent nature of policy going forward could see the pace of rate rises slow sharply going forward. As such, AUD/USD is targeting Friday's lows of 0.6911, a break below which opens Jul 21's 0.6859 for direction.
  • Data are few and far between Tuesday, with just the US JOLTS data on the docket. The speaker slate could take more interest, with comments from Fed's Bullard, Mester and Evans all due.
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