NZD: Asia Wrap - NZD/USD Slightly Higher As USD Bears Wrestle Back Control

The Asia-Pac USD/JPY range has been 146.86 - 147.57, Asia is currently trading around 147.30, -0.10%. The pair has traded sideways with little direction, the soft opening for risk saw some reprieve for JPY longs in the crosses. The USD/JPY relentless march higher has been pretty telling, challenging a market positioned the wrong way. Price is now consolidating some of those recent gains, dips back towards 145.00 should now find support first up. CFTC Data shows leveraged funds have pared back their JPY longs almost back to flat, Asset managers have pared back some of their position but still continue to run a decent sized long JPY position.

• (Bloomberg) -  " The Bank of Japan finished selling millions of dollars of stocks it bought from besieged banks, ending a nearly two decade process. The BOJ's holdings of the shares purchased from banks hit zero as of July 10, falling from 2.5 billion 10 days ago, according to its balance sheet report."
• JAPAN DATA -  Core Machine Orders Y/Y Slows, But Still Pointing To Resilient Capex.
• "JAPAN RULING BLOC MAY LOSE MAJORITY IN ELECTION: JNN ANALYSIS” - BBG
• (Bloomberg) - Options traders appear to be positioning for the yen to weaken further in the near-term due to looming US inflation data and Japan’s upper house elections.
• USD/JPY has lost all downside momentum for now and is back in its wider 142.00 - 148.00 range. The Market is long JPY and should the USD manage to continue to correct higher the risk is a move back to the top end of the range to further challenge the conviction of the shorts.
• Options : Close significant option expiries for NY cut, based on DTCC data: 146.10($514m).Upcoming Close Strikes : 146.50($1.25b July 16).
• CFTC data shows Asset managers reduced their JPY longs slightly +89331, while leveraged funds have almost squared their newly built JPY longs +5224.

Fig 1 : JPY CFTC Data

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

The AUD/USD has had a range of 0.6558 - 0.6588 in the Asia- Pac session, it is currently trading around 0.6565, -0.20%. CFTC Data does not show any real reduction in the AUD short positions, the price action at the end of last week suggested there might have been some paring back of these so it's interesting to see it has not had an impact yet. Risk is opened on the backfoot this morning as the world has to again digest Trump's next round of tariffs this time on Europe and Mexico. AUD/USD is being capped by decent supply towards 0.6000, price needs to clear this to gain momentum for a push higher until then it looks back to the range.

• (Bloomberg) -- “The IMF data show reserve managers shifting into USD in 4Q 2024, reducing most other currencies by modest amounts. The exceptions were large drops in the percentage of holdings for AUD and GBP. For the Aussie dollar that was the single largest change in allocations in either direction since 2012. In 1Q 2025 the shift out of AUD ramped up massively, to the lowest level on record.”
• “The US government is pressing Japan and Australia to clarify their roles in the event of a US-China war over Taiwan, a move that upsets America’s two key allies in the region, the FT reported.” -BBG
• The AUD/USD continues to hold above its support around 0.6500, looks like it's back to the 0.6500 - 0.6600 range and it should now take its cues from the USD. Watching to see if the market can build on this outperformance and break above 0.6600.
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.6560(AUD631m July 15), 0.6495(AUD611m July15), 0.6700(AUD611m July 16).
• CFTC Data shows Asset managers added to their shorts slightly -38252, the Leveraged community pared back their shorts to -19061.

• AUD/JPY - Today's range 96.46 - 96.93, it is trading currently around 96.75, -0.20%.   The pair has had a good move above 96.00 and this time looks to be building real momentum to extend higher. The market has been caught wrong-footed in both legs of this pair and price action suggests a potential move back to 99.00/100.00. Dips back to 95.50/96.00 should now be supported.

  Fig 1: AUD CFTC Data

  

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

The AU-US 10-year cash yield differential currently stands at -6bps, positioned near the middle of the +/- 30bps range that has held since November 2022.

• A simple regression of the 10-year yield differential against the AU-US 1-year forward 3-month swap rate (1Y3M) differential over the past year suggests the current spread is slightly below fair value at -4bps.
• The 1Y3M differential, a key gauge of expected relative policy trajectories over the next 12 months, has traded within a 40bp range this year and is currently in the top half of the range at ~-5bps after last week’s surprise decision by the RBA to leave the cash rate unchanged at 3.85%.
• In early February, the 1Y3M differential had declined approximately 100bps since mid-September 2024, falling from +60bps to -40bps.

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Source: Bloomberg Finance LP / MNI