NZD: Asia-Pac: NZD/USD Drifts Back Above 0.5800 As USD Correction Stalls

NZGB benchmark yields are up from earlier lows. The 2yr yield is now up close to 2bps, tracking back towards 2.95%. The 10yr NZGB yield is around 4.31%, still off 1.5bps. Both benchmarks remain close to recent lows. US Tsy yields have drifted a touch higher, led by the front end, which may have spilled over to NZ at the margins. 

• The NZ 2/10s curve remains flatter last near +136.5bps. The NZ 2yr swap rate has edged up to 2.735%, against earlier lows near 2.705%, so mirroring the movement in NZGB front end yields.
• On the data front, Q2 NZ business sales values rose 2.1% q/q with profits up 4.2%. Salaries and wages rose only 1.2% q/q. Manufacturing volumes fell 2.9% q/q after rising 2.4%. Q2 GDP is released on September 18 and the RBNZ is forecasting it to fall 0.3% q/q. Data has shown weak building, goods exports and manufacturing volumes. The RBNZ is expected to cut rates at its October and November meetings.

The AUD/USD has had a range of 0.6588 - 0.6604 in the Asia- Pac session, it is currently trading around 0.6600, +0.12%. US rates extended lower again and the USD traded soft, the headwinds for the USD seem to be compounding which points to a potential look below its support. The AUD has drifted higher and is looking to test the top-end of its recent range. The AUD remains in its recent multi-month range of 0.6350-0.6650, should the USD break and extend lower we could potentially see the AUD break back above 0.6650. Should this occur it could provide the upward momentum to target levels back towards 0.6900/0.7000. Although still in the range the bias is for dips back to 0.6500 to be supported now.

• Growth Recovery Continued In Q3, August Costs/Prices Moderated. August NAB business confidence fell to +4 from +8 but conditions improved to +7 from +5. Both have improved in Q3 to date by around 3 points signaling that GDP growth should continue to recover. The price/cost components were lower in August with purchase cost and retail price increases at multi-year lows, which should reassure the RBA. However, the Q3 average of final product prices is still around where it was in H1 signaling some stabilisation in disinflation. Labour demand also appears to have steadied.
• Consumer Sentiment Weaker But Series Is Volatile: Westpac consumer sentiment fell 3.1% m/m to 95.4 in September after August’s robust +5.7% m/m to 98.5. It remains in pessimistic territory but above the 2025 average helped by 75bp of monetary easing and lower inflation.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6515(AUD429m), 0.6600(AUD420m). Upcoming Close Strikes : 0.6550(AUD777m Sept 10) - BBG
• CFTC Data last week shows Asset managers reduced their shorts for the first time in a while -66025(Last -78758), the Leveraged community though look to be rebuilding their own shorts after winding them down -11860(Last -6447).
• AUD/JPY - Asia-Pac range 97.12 - 97.28, Asia is trading around 97.20. The pair topped out towards 97.50 but has held onto most of its gains on the gap higher yesterday unlike USD/JPY. A sustained break above 97.50/98.00 is needed to reignite the upward trend.

Fig 1: AUD/USD spot Daily Chart

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

• China's major bond futures are all lower today for a third consecutive day of falls.
• The 10-Yr is lower by -0.05 at 107.790 to move further below all major moving averages.
• The 2-Yr is lower by -0.01 at 102.38 to move away from the 20-day EMA of 102.38.

• Government bond yields are marginally lower with the CGB 10-Yr at 1.78%.