AUD: Back Above 0.6400, Amid Broad USD Weakness, RBA Governor Before Parliament

USD/JPY didn't see new daily ranges post the Asia close on Tuesday. We moved back above 156.00, but found selling interest, the pair tracks near 155.50 in early Wednesday dealings. We were little net changed in aggregate for Tuesday's session. Broader USD sentiment pared a lot of the earlier tariff headline induced gains. The USD BBDXY index sits back at 1302.35, close to recent lows under 1300.

• For USD/JPY downside focus will rest on the 50-day EMA at 155.00, while yesterday's low was 154.78. The 20-day EMA sits at 156.56 on the topside.
• Equity sentiment was mostly positive in offshore markets, particularly US stocks, (SPX up a further 0.88%), which dented USD sentiment as the Tuesday session unfolded. US yields held lower, albeit up from earlier lows, the 10yr US Tsy yield last near 4.57%.
• Outside of a +0.30% SEK gain, aggregate G10 FX moves were modest like the yen, not getting much beyond the 0.10% level. CAD and MXN pared earlier losses, albeit more so for the Canadian dollar.
• Headlines have also crossed this morning from the WSJ that Trump is sing the early tariff threat for Canada and Mexico to push for earlier trade talks (in reference to USMCA). FX markets, including yen, will remain very sensitive to these developments.
• Locally today, the data calendar is quiet. Onshore news agency Kyodo reported late yesterday that the central bank is moving towards a rate hike this week.
• Note in the otpion expiry space, the following for NY cut later today: Y154.50-60($1.1bln), Y155.50($1.3bln), Y156.45($555mln).

RBNZ dated OIS pricing is slightly softer ahead of Q4 CPI data. 

• 45bps of easing is priced for February, with a cumulative 110bps by November 2025.

Figure 1: RBNZ Dated OIS Today vs. Yesterday (%)

Source: MNI – Market News / Bloomberg

A week out from the first day of the FOMC's 2-day January meeting, Fed rate pricing was almost unchanged Tuesday vs Friday (the last full session before Monday's market close). 

• Fed funds futures continue to see the next 25bp cut in July, with 39bp of cuts through the whole of 2025 (1bp more than seen at Friday's close).
• That said, 2025 cut pricing was as high as 43bp overnight -equalling last week's post CPI levels - alongside a rally in the rest of the fixed income complex, on Trump tariff headlines.
• But the move faded in early trade, with Dec25 implied Fed Funds settling at 3.94% (39bp of cuts from 4.33% effective Fed funds spot).
• With no FOMC speakers ahead of next week's meeting (a hold is almost 100% priced), and market-moving data limited until Thursday's jobless claims, attention for potential market movers will be first and foremost on Trump administration policy announcements.