FOREX: Asia FX Wrap - The USD Gets A Reprieve, For How Long ?

Oil prices have continued their downtrend after stabilising Monday after talks between Presidents Trump and Zelenskyy and European leaders appear to have been constructive with most sounding positive, although President Macron sounded sceptical that President Putin wants peace. A peace deal would likely result in an easing of sanctions on Russia which could see an increase in global oil supplies at a time of a significant market surplus. 

• WTI is down 0.7% to $62.97/bbl (initial support at $61.94), close to the intraday low, while Brent is 0.6% lower at $66.17, above support at $65.01.
• A meeting between Zelenskyy and Putin could happen before the end of August with another including Trump to occur thereafter. He agreed that discussions of territory were between Ukraine and Russia, while security for Ukraine will principally be provided by Europe but the US will also be “involved” with Trump saying that “we’ll give them good protection”.
• US threats to impose punitive tariffs on those who buy Russian oil currently appear shelved but if that remains the case will depend on how Russia negotiates.

The BBDXY has had a range of 1205.00 - 1207.00 in the Asia-Pac session, it is currently trading around 1205, +0.05%. The USD found some demand as the market pares back some risk as we head into Jackson Hole at the end of the week. A sustained break below 1197/1195 is needed to regain the momentum lower and retest the year's lows, but risk is more likely skewed to the USD shorts continuing to be reduced into Powell's speech.

• EUR/USD -  Asian range 1.1639 - 1.1675, Asia is currently trading 1.1655. The market is trading sideways in a 1.1600-1.1750 range heading into Jackson Hole. The pair is unlikely to break out as await Powell's speech.
• GBP/USD - Asian range 1.3487 - 1.3514, Asia is currently dealing around 1.3500. Having broken back above its pivot look for dips to again be supported, first support seen now back towards 1.3400/1.3500.
• USD/CNH - Asian range 7.1854-7.1919, the USD/CNY fix printed 7.1359, Asia is currently dealing around 7.1860. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
• Cross asset : SPX -0.20%, Gold $3337, US 10-Year 4.34%, BBDXY 1205, Crude Oil $62.95
• Data/Events : EZ ECB Current A/C, Italy Current A/C

Fig 1: BBDXY Spot 2H Chart

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

NZGBs closed near session cheaps, with benchmark yields 4bps higher.

• The RBNZ meets on Wednesday, August 30 and is likely to cut rates 25bp to 3.0%, the mid-point of its estimated "neutral" range. While it paused at the July meeting, it was with a clear easing bias.
• With the cut widely forecast, attention will be on the revised RBNZ outlook and tone of the statement and press conference. The focus is likely to be on the projected OCR path and whether it is revised lower, suggesting further easing towards stimulatory territory as excess capacity persists.
• With the focus on the medium-term, the 2026 and beyond inflation forecasts will be the important ones and should remain around the 2% band mid-point. See MNI Preview here:
• On Thursday, Governor Hawkesby will appear before a parliamentary committee to talk about the latest Monetary Policy Statement.
• Swap rates are 5-6bps higher.
• RBNZ dated OIS pricing closed firmer across meetings. 23bps of easing is priced for tomorrow, with a cumulative 39bps by November 2025.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% May-30 bond, NZ$175mn of the 4.50% May-35 bond and NZ$50mn of the 1.75% May-41 bond.