Risk Aversion Evident, Iron Ore Dip Weighs On AUD, JPY Intervention Talk Returns

Participants rushed to safety as U.S. e-mini futures erased their initial uptick, while U.S. Tsy yield curve bear steepened as cash trading re-opened. The BBDXY index gained for the fifth consecutive day as its 1-month implied volatility was closing on its cyclical highs. There was little in the way of fresh risk-off headline flow, but familiar concerns continued to linger, affecting Japanese, South Korean and Taiwanese players as they returned from holidays.

• Spot USD/JPY traded within touching distance from a cyclical high (Y145.90) last printed on Sep 22, when Japanese officials intervened to prop up the yen. Renewed jawboning may have lent additional support to the yen, as officials vowed readiness to act decisively if needed. Japan's FX czar Kanda said he could order an intervention while en route to the G20 summit in Washington D.C.
• Risk aversion and intervention talk kept a lid on USD/JPY, allowing it to look past widening U.S./Japan yield spreads, with JGB yields anchored by confidence in the BoJ's commitment to its ultra-loose policy. PM Kishida reiterated his support for the central bank's current policy stance.
• A drop in Iron ore prices sapped strength from the Aussie dollar, which paced losses in G10 FX space for the second consecutive day. AUD/USD refreshed cycle lows, while AUD/NZD fell below the NZ$1.1300 figure.
• Spot USD/CNH advanced but the CNH7.2 mark proved resilient, with domestic COVID-19 case counts likely weighing on the redback.
• Major data releases going forward are limited to the UK labour market report. Speeches are due from Fed's Mester, ECB's Lane & Villeroy, BoE's Bailey & Cunliffe.