FOREX: Asia FX Wrap - The USD Sell-Off Takes A Breather In The Asian Session
The BBDXY has had a range of 1193.62 - 1195.64 in the Asia-Pac session, it is currently trading around 1194. A very quiet trading range in Asia today. With the market now looking for more US rate cuts, an already bearish outlook for the USD has seen the move lower gather pace overnight. The move sub 1200 is potentially signalling the start of a deeper move back to 1150 and beyond. “FX traders are focusing on call options in the 1.20-to-1.25 area, along with higher implied volatility. That’s a clear signal that fresh funds are piling into bullish euro strategies.”(BBG). “KASHKARI: WOULDN'T BET AGAINST DOLLAR AS PREEMINENT CURRENCY.”(BBG)
- EUR/USD - Asian range 1.1681 - 1.1710, Asia is currently trading 1.1695. While the USD remains on the back foot the EUR will continue to be supported first support back towards 1.1500. This move seems to be accelerating and will now be looking towards 1.2000 and beyond.
- GBP/USD - Asian range 1.3717 - 1.3750, Asia is currently dealing around 1.3735.This move higher now looks to have broken convincingly higher and with the USD looking like it is set for another leg lower Cable could now target levels back towards 1.4200.
- USD/CNH - Asian range 7.1618 - 7.1717, the USD/CNY fix printed 7.1627. Asia is currently dealing around 7.1685. Sellers should be around on bounces while price holds below the 7.2500 area and the PBOC manages the fix lower.
- Cross asset : SPX -0.2%, Gold $3355, US 10-Year 4.385%, BBDXY 1207, Crude oil $65.67
- Data/Events : Spain GDP & PPI, France Consumer Confidence
Fig 1: GBP/USD Spot Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
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STIR: RBNZ-Dated OIS Firmer After Today’s Policy Decision & Presser
RBNZ-dated OIS pricing closed 6-10bps firmer across meetings versus pre-RBNZ levels.
- Governor Hawkesby held his first press conference and noted that the vote on the direction of rates was the first in two years and usually occurs at inflexion points and also reflects the high degree of uncertainty at the moment. With rates now in the “neutral zone”, the MPC “can now respond to developments as they occur”, thus further easing isn’t a given and future decisions will remain data and outlook dependent.
- Markets had fully priced in today’s 25bp cut ahead of the decision, with a total of 64bps of easing expected by November 2025. That has now adjusted to 57bps, inclusive of today’s move.
Figure 1: RBNZ Dated OIS Today vs. Pre-RBNZ Levels (%)
Source: MNI - Market News / Bloomberg
GOLD: Stronger Greenback Continues To Pressure Gold
Gold prices are down slightly during today’s APAC trading after falling 1.3% on Tuesday. They are down 0.1% to $3296.60 as the strengthening US dollar continues to weigh (USD BBDXY +0.1%) while equity and commodity prices are mixed. Bullion rose to $3315.81 early in the session before falling to $3291.79.
- Gold is trading in a narrow range as markets wait for news on the progress of trade negotiations and key US data out on Friday, especially PCE prices. US April durable orders were better than expected and the Dallas Fed manufacturing index improved substantially. It is also sensitive to geopolitical developments that may shift safe-haven flows.
- Equities have been mixed with the S&P e-mini down 0.1% and Hang Seng -0.6% but Nikkei up 0.3% and Kospi +1.7%. Oil prices are higher with the WTI +0.6% to $61.24. Copper is down 0.6% though. Silver is little changed at around $33.26.
- Later the Fed’s Williams and Kashkari speak as well as the May FOMC meeting minutes are released. US May Richmond & Dallas Fed indices as well as German April unemployment and French April consumption are released. BoE’s Pill also speaks.
NZD: Asia Wrap - NZD Bounces On A Hawkish Cut
The NZD/USD had a range of 0.5924 - 0.5980 in the Asia-Pac session, going into the London open trading around 0.5960. The NZD has bounced pretty hard with the RBNZ being surprisingly hawkish suggesting that they are pretty close to neutral now.
- The RBNZ decision, has aided NZD, with the 25bps cut and lowered OCR projection offset by the non-unanimous decision. This hints further cuts may be harder to come by, while Governor Hawkesby wouldn't be drawn on the policy bias at the next meeting, with central bank well placed to respond to developments. RBNZ officials also note the new OCR of 3.25% is in the neutral zone.
- "RBNZ GOV HAWKESBY: HAVE LOWERED RATES A CONSIDERABLE WAY, STILL WORKING WAY THROUGH - [RTRS]"
- "RBNZ'S CONWAY: OCR AT 3.25% IS `INTO NEUTRAL ZONE'" - BBG.
- The NZD has bounced across the board on the back of this and expect this price action to continue as shorts that had been added to hoping for a more dovish outcome are pared back.
- The NZD continues to trade in a 0.5850/0.6050 range, another failure above 0.6000 and with corporate month-end in play be on the lookout for more demand of USD’s over the next day or 2.
- The support back towards 0.5800 has held very well, and while this continues to hold expect buyers to be around on dips. The first target is the highs just above 0.6000, a break here could provide the spark for the next leg higher.
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5725(NZD1.09b). Upcoming Close Strikes : 0.5975(NZD400m May 29)
AUD/NZD range for the session has been 1.0779 - 1.0851, currently trading 1.0790. A sustained break above 1.0930 is needed to turn the focus higher, until then expect supply on bounces. It traded up to a high around 1.0851 just before the RBNZ, but has subsequently dropped lower as the RBNZ suggests they are close to neutral. A top looks in place now just above 1.0900, the market will have been looking for a more dovish tone today and AUD/NZD should now see supply on bounces. The first target is around 1.0650.
Fig 1: AUD/NZD Spot Daily Chart
Source: MNI - Market News/Bloomberg
