NZD: Asia-Pac: NZD/USD Breaks Lower As RBNZ Surprises Market With 50bps Cut

Oil prices fell sharply on Friday ahead of the weekend’s OPEC decision but given the cautious 137kbd increase in the output target from October, there appears to be a relief rally today. WTI is up 1.2% to $62.58/bbl after an earlier peak of $62.70 and Brent is 1.2% higher at $66.27/bbl after reaching $66.36. The USD index is slightly higher. 

• The latest OPEC production increase is significantly less than previous +400kbd rises but the continued rise in the output target signals that it is now focussed on regaining market share. The oil market may have been reassured by its cautious tone though as it said it could withdraw earlier output hikes.
• However, OPEC could still unwind its earlier 1.66mbd reduction in its target, which was scheduled to be in place until end-2026, but it will depend on “evolving market conditions”. The group has added 2.2mbd over the last five months.
• The IEA has forecast a record market surplus for 2026, which has pressured oil prices. The EIA short-term energy outlook is published Tuesday with the IEA and OPEC monthly reports on Thursday.
• Later August NY Fed 1-yr inflation expectations, July US consumer credit and German July trade & IP print. The focus of the week will be on Tuesday’s US payroll benchmark revisions, Wednesday’s August PPI and Thursday’s August CPI.

The BBDXY has had a range of 1202.47 - 1204.11 in the Asia-Pac session, it is currently trading around 1203, +0.10%. The USD was again surprisingly able to shrug off the extension lower in US yields and found solid demand below 1200 helping it keep the support in place for now. A sustained break below 1197/1195 is needed to regain the momentum lower and retest the year's lows.

• EUR/USD -  Asian range 1.1704 - 1.1721, Asia is currently trading 1.1715. The pair bounced on Friday in response to the NFP but momentum stalled into the close. EUR trades firmly within its wider 1.1350-1.1850 range with a bias to the topside.
• GBP/USD - Asian range 1.3483 - 1.3506, Asia is currently dealing around 1.3495. The pair bounced strongly off its support around 1.3350 last week. The move above 1.3500 on NFP has stalled but price is now back in the middle of its 1.3350-1.3650 range. A sustained break below 1.3350 is needed to open up a move back to 1.3100. 
• USD/CNH - Asian range 7.1244 - 7.1283, the USD/CNY fix printed 7.1029, Asia is currently dealing around 7.1325. 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 +0.10%, Gold $3581, US 10-Year 4.10%, BBDXY 1203, Crude Oil $62.58
• Data/Events : EZ Sentix Investor Confidence, Germany Industrial Production/Trade Balance

Fig 1: BBDXY Spot 2H Chart

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

The NZD/USD had a range of 0.5883 - 0.5904 in the Asia-Pac session, going into the London open trading around 0.5900, +0.12%.  The NZD pushed higher in reaction to the NFP but found good selling above 0.5900 capping the move for now. This 0.5900-0.5950 area presents a good opportunity to fade for those who are bearish the NZD, but the caveat to this trade remains the USD’s ability to not break down. CFTC Data shows light positioning in a market that is struggling for a strong trend.

• Q2 manufacturing data print Tuesday including volumes. Manufacturing volumes rose 2.4% q/q in Q1. Q2 GDP prints on September 18, which the RBNZ expected to fall 0.3% q/q in its August projections.
• Bloomberg - “Dollar Vulnerability Turns to Downtrend on Payroll Miss. Further dollar weakness looks inevitable, with soft jobs data and falling rate expectations reinforcing the case for sustained downside. Together, easier Fed policy and the potential return of passive hedging flows create a feedback loop that makes sustained dollar strength increasingly difficult to justify.”
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5800(NZD515m Sept 10), 0.5870(NZD320m Sept 10) - BBG
• CFTC Data of last week shows Asset Managers added slightly to their new short position in the NZD -5127(Last -4743), the Leveraged community have completely exited their short and have turned a fraction long +285(Last -225).
• AUD/NZD range for the session has been 1.1115 - 1.1133, currently trading 1.1120. The Cross is consolidating above 1.1100, dips back towards 1.1000/1.1050 should be supported now.

Fig 1: NZD CFTC Data

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