Asia FX Talk · Less hawkish Fed comments lowers US yields

Key arguments

• Williams' less hawkish tone lowered US 2Y yields ~5bp to 4.88% and trimmed October hike odds, but Barr and Musalem kept the tightening bias.
• Softer US labour data (job openings 7.1mn, consumer confidence 81.9) challenged but did not reverse the market's hawkish Fed repricing; 2Y still near 5%.
• MUFG expects CNY support from China's trade surplus, tech sentiment and policy support; faster 'Six Networks' execution should narrow the PMI gap over time.
• RBA's unanimous 25bp hike to 4.60% underscores the region's policy dilemma as energy costs stay high even as Australian inflation, consumption and housing slow.

Corresponding source evidence

1. In particular, he said that one more interest rate hike “late this year” may be appropriate to help contain inflation, while saying that there was no urgency to act following the Fed’s decision to lift rates earlier this month if the economy evolves in amanner broadly consistent with his forecast. · this year
2. Broader Fedspeak were overall consistent with further interest rate increases through the cycle, with Fed Governor Barr repeating a warning that further adjustments are likely needed to ensure that inflation comes down to target in a timeline fashion, while St Louis Fed President Musalem said interest rates are still not high enough to weigh on economic growth.
3. US job openings fell to 7.1mn in August, below the 7.2mn expected, while consumer confidence declined to 81.9 in September from 88.6 (lowest level since, pointing to greater caution among employers and households.