RBC suggest that "further Chinese......>

AUSSIE BONDS: RBC suggest that "further Chinese policy action is likely &

creates an added complication for the RBA. Against the backdrop of G7 policy

normalisation, this suggests an RBA on hold for longer. Rate cut speculation

would demand a much weaker Chinese & global growth complex. This keeps us welded

to our long held FI strategy biased towards AU outperformance, steeper curve &

long/received front end positions although we are mindful of the funding

dynamics & potential implications of a shift in BoJ policy. The clearer trade is

a weaker A$ & we have revised down our end 2018 AUD/USD forecast to 0.7000 (from

0.7300). AU funding has finally begun to ease after pressure lingered after July

month-end. On the back of this & a general sell-off in yields we have realised

some performance on our received 3yr EFP trade, but may look to take it off

ahead of our original 2bp target. Elsewhere the AOFM issued a new ACGB '41 which

priced close to fair value. At just $3.6bn the deal was quite small by

syndicated ACGB standards, but with 46% taken down by leveraged money there may

be some renewed demand for repo. The new bond & associated buybacks will help

contribute to a sizeable AU Bond Tsy index lengthening of ~0.14 yrs."