Yen Goes Ballistic Amid Taiwan Angst, Aussie Retreats On RBA Guidance Tweak

The yen had another stellar session as U.S. House Speaker Pelosi's touted trip to Taiwan stole the limelight, causing geopolitical angst to radiate across Asia. As things stand, Pelosi is expected to arrive in Taipei around 10pm local time, with Beijing threatening unspecified military response.

• USD/JPY tumbled as low as to Y130.41, bottoming out within touching distance from its 100-DMA, which was last breached in Sep 2021. The rate continued to take out key support levels, leaving with Jun 16 low/61.8% retracement of the May - Jul rally (131.50/34) in the rear-view mirror.
• Despite the yen capitalising on its safe haven allure, relative yield dynamics remained pertinent. USD/JPY moved away from session lows as U.S. Tsys pulled back from highs. Still, U.S. Tsy yields remain lower on the day, which underpins further compression of their gap with Japanese counterparts.
• The Aussie dollar took a beating from the RBA, which raised the cash rate target by the widely expected 50bp increment, but added a mention that "it is not on a pre-set path" when it comes to policy normalisation into the guidance paragraph of the statement.
• Post-RBA Aussie sales rubbed salt into the wounds of regional risk barometer AUD/JPY, sending it to worst levels since May 30. Meanwhile, AUD/NZD dropped in tandem with Australia/New Zealand 2-year swap rate spread.
• USD/CNH unwound its initial foray to the highest point since May 17 and slipped into negative territory. USD/TWD remained elevated, consolidating above the TWD30.00 mark.
• The global data docket is light going forward, while central bank speaker slate features Fed's Evans, Mester & Bullard. The market will be on the lookout for any updates on the Taiwan situation.