A decline in oil prices and US Treasury intervention cut long-end yields, reducing volatility and bolstering carry trades ahead of key US data.
A 10-15 basis point drop in longer-dated US Treasury yields, driven by lower oil prices and recent intervention by US officials, has reduced volatility in FX and equities markets. The move follows an 8% decline in oil prices since last week, amid speculation over Middle East de-escalation talks.
The yield drop aligns with a softer risk backdrop, with carry trades gaining traction. The Australian dollar rose after July CPI data surprised to the upside, raising expectations for a Reserve Bank of Australia rate hike in November. Markets now await US core PCE inflation data and a $44bn 7-year note auction.
ING expects the Dollar Index (DXY) to remain steady, capped near 99.00/10 and drifting toward 98.60, supported by a benign inflation reading and lower yields.