NEW ZEALAND: 3% Q3 CPI Unlikely To Derail Easing As Core To Remain In Band

The NZD/USD had a range of 0.5956 - 0.5975 in the Asia-Pac session, going into the London open trading around 0.5960, -0.18%.  US stocks continue to push higher, the risk is the market is getting ahead of itself looking for a potential positive outcome from the FOMC, so the bar for disappointment is being lowered. The USD continues to look vulnerable, which continues to support the NZD. A close back above 0.6000 would negate any semblance of the downward pressure it was exhibiting, but for those that have a bearish view this remains a decent entry point to express that.

• August Price Rises Moderate: The August monthly CPI series generally showed a slowdown in increases with food inflation up 0.3% m/m after 0.7% stabilising the annual rate at 5%. The RBNZ forecast Q3 headline inflation at 3.0% y/y in August, the top of its band, with the risk it could temporarily be above. It remains focussed on the medium-term outlook though as it says it can do little to impact the near term. However, the stabilisation or moderation in August is likely to be welcomed
• Westpac Expects Inflation To Be Below 3% By End 2025. NZ food inflation stabilised at 5.0% y/y in August, its highest since November 2023, while increases for existing rents moderated 0.3pp to 2.1% y/y, the lowest since 2011. The stabilisation or moderation, especially travel-related prices, in August is likely to be welcomed by the RBNZ as it sees a risk that Q3 could print above 3%, the top of the band. Westpac believes that it will be below this level by year end.
• “NZ AUG. GOVT. BONDS HELD BY FOREIGNERS FALL TO 61.5%" - BBG
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5825(NZD1.01b Sept 17), 0.5900(NZD860m Sept 17), 0.5935(NZD537m Sept 18) - BBG
• AUD/NZD range for the session has been 1.1158 - 1.1191, currently trading 1.1175. The Cross is consolidating above 1.1100, dips back towards 1.1000/1.1050 should be supported now. A break above the multiple highs towards the 1.1200 area is needed to regain the momentum higher.

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

The USD/JPY range has been 146.97 - 147.54 in the Asia-Pac session, it is currently trading around 147.05, -0.25%. USD/JPY came under selling pressure in our session moving back down towards 147.00 as Koizumi says he will run for LDP leadership. The price remains in the middle of its recent 146-149 range, and we need a convincing break to see a clearer direction again. CFTC data shows leveraged funds paring back some of their short JPY position last week but remain core short, looking for this support to continue to hold. A move back below 145/146 is needed to potentially start seeing these positions being flushed out.

• (Bloomberg) -  "JGB Traders See Koizumi-Kato Team Endorsing BOJ Hike. JGB traders are leaning hawkish as Shinjiro Koizumi taps Finance Minister Kato to steer his campaign. Traders see that pairing as the stronger ticket in the LDP race, and one that could give the Bank of Japan room to raise interest rates before year-end."
• "JAPAN CHIEF CABINET SECRETARY HAYASHI, SPEAKING AS CANDIDATE FOR LDP LEADERSHIP RACE: WILL INCLUDE POLICY MEASURES TO KEEP BUDDING MOMENTUM OF ECONOMIC RECOVERY GOING, WILL SEEK PARTNERSHIP WITH OTHER OPPOSITION PARTIES AFTER SOLIDIFYING KEY POLICIES" RTRS
• MNI BOJ WATCH: Board To Hold, Focus On CPI, Trade. The Bank of Japan board is likely to keep its policy rate unchanged at 0.50% at the two-day meeting ending Friday as it assesses the impact of tariffs on the U.S. and Japanese economies.
• Options : Close significant option expiries for NY cut, based on DTCC data: 150.00($1.49b), 146.00($1.41b), 145.00($838m).Upcoming Close Strikes : 145.00($1.32b Sept 19), 145.70($1.22b Sept 17), 146.40($797m Sept 19) - BBG.
• CFTC data shows last week asset managers again added to their JPY longs again as they look to rebuild their position +87239( Last +78427), leveraged funds reduced their short position perhaps losing confidence the support will continue to hold -49591(Last -66914). 

Fig 1 : USD/JPY Spot 2H Chart

Source: MNI - Market News/Bloomberg Finance L.P

The AUD/USD has had a range of 0.6663 - 0.6676 in the Asia- Pac session, it is currently trading around 0.6665, -0.05%. US stocks continue to push higher, the risk is the market is getting ahead of itself looking for a potential positive outcome from the FOMC, so the bar for disappointment is being lowered. The AUD continues to be supported and grinds higher. Should the USD break and extend lower we could see the AUD gain momentum above 0.6650/0.6700 and potentially target levels back towards 0.6900/0.7000. The price action suggests dips will be supported for now as we await confirmation of this potential break higher, the first buy-zone is back towards the 0.6550 area.

• "RBA'S HUNTER: CONSUMPTION LOOKING BETTER, POSITION STARTING TO TURN OVER,  MONITORING VERY CLOSELY THE UNDERLYING STRENGTH OF CONSUMER SPENDING, WANT TO KEEP ECONOMY NEAR FULL EMPLOYMENT - [RTRS]"
• Bloomberg - “Investors Cut Dollar Exposure at Record Pace, Deutsche Bank Says. “The FX implications are clear: foreigners may have returned to buying US assets (albeit as we wrote last week at a reduced pace), but they don’t want the dollar exposure that goes with it,” Saravelos wrote. “For every hedged dollar asset that is bought, an equivalent amount of currency is sold to remove the FX risk.”
• This adds credence to recent reports of Aussie Pension/Super funds looking to increase their hedging ratios as the AUD starts to move higher.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6600(AUD549m). Upcoming Close Strikes : 0.6600(AUD894m Sept 18), 0.6750(AUD1.16b Sept 19) - BBG
• CFTC Data last week shows Asset managers slightly increasing their shorts -68333(Last -66025), the Leveraged community pulled back the shorts they had just started to rebuild -5081(Last -11860).
• AUD/JPY - Asia-Pac range 98.04 - 98.39, Asia is trading around 98.00. The pair continued to consolidate its recent gains, the focus now turns back towards the 99.00/100.00 area. Dips back towards 96.50/97.00 should be expected to be supported now first up.

Fig 1: AUD/USD spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P