NZD: Asia Wrap - NZD/USD Trading Heavy Testing 0.5800 Support

NZGBs closed 1-2bps richer after a subdued session of trading. 

• The NZ-US 10-year yield differential widened slightly to 19bps.
• Cash US tsys are slightly richer in today's Asia-Pac session after yesterday's rally.
• NZ posted a small merchandise trade surplus in June of $42mn, the fifth consecutive positive, after a downwardly revised $1082mn. There was a rise in the 12-month YTD deficit to $4.37bn from $3.93bn, but it is too early to say the trade improvement has stalled. Annual import growth rose sharply last month and was not as weak as exports in Q2.
• Swap rates closed flat to 4bps lower, with a flatter 2s10s curve.
• RBNZ dated OIS pricing closed little changed across meetings today but remains 5-9bps softer versus Monday’s pre-CPI levels. 21bps of easing is priced for August, with a cumulative 38bps by November 2025.
• Tomorrow, the local calendar will be empty.  
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.0% Apr-29 bond, NZ$175mn of the 2.75% Apr-37 bond and NZ$50mn of the 5.0% May-54 bond.

After rising close to 1.5% on Monday, gold is slightly lower today as the US dollar stabilises (BBDXY USD +0.1%). Bullion is down 0.2% to $3389.1/oz after rising to $3402.82 early in the session. It is off its intraday low of $3385.23 though. Continued uncertainty over the trade outlook and the future of Fed Chair Powell has supported gold recently.

• Trade negotiations with the US continue ahead of the August 1 deadline. Japan’s negotiator Akazawa met with US Commerce Secretary Lutnick for more than 2 hours to formulate a deal that would profit both countries, according to Reuters.
• Equities are mixed with the S&P e-mini flat, Hang Seng up 0.3% but Nikkei down 0.6%. Oil prices are lower with Brent -0.9% to $68.60/bbl. Copper is down 0.6%. Silver has fallen 0.4% to $38.78 after rising 2% on Monday.
• Later the Fed’s Powell will make opening remarks at a regulatory conference and Bowman appears too but with the blackout having begun ahead of the July 30 decision, monetary policy is unlikely to be covered. US July Philly and Richmond Fed indices, and the ECB’s bank lending survey are released. BoE Governor Bailey testifies on financial stability.

The NZD/USD had a range of 0.5956 - 0.5975 in the Asia-Pac session, going into the London open trading around 0.5965, -0.07%. The pair found decent supply overnight towards the 0.6000 area once more. The 0.5850/0.5900 area is important support if the pair is to eventually push higher, a weekly close below 0.5850 would turn the picture quite bearish. Price will need a sustained break back above the 0.6025/50 area to signal a potential base might be in place.

• NEW ZEALAND: Q2 Exports Fall As Shipments To US Normalise. NZ posted a small merchandise trade surplus in June of $42mn, the fifth consecutive positive, after a downwardly-revised $1082mn. There was a rise in the 12-month YTD deficit to $4.37bn from $3.93bn but it is too early to say the trade improvement has stalled. Annual import growth rose sharply last month and was not as weak as exports in Q2.
• Kelly Eckhold on LinkedIn: “The June Chinese trade data showed a continued acceleration of vehicle exports to New Zealand as Chinese cars/utes increasingly dominate the NZ car market. Exports to NZ are running way ahead of growth in other markets.” See Graph below.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6000(NZD300m). Upcoming Close Strikes : 0.5750(NZD348m July 23). - BBG
• CFTC Data shows Asset Managers slightly reduced their newly built longs in NZD +8192, the Leveraged community has continued to reduce their shorts last week -6744.
• AUD/NZD range for the session has been 1.0924 - 1.0944, currently trading 1.0940. The cross moved higher in response to the NZ CPI. Dips back to 1.0850/1.0900 should continue to find support as the pair tries to build momentum to move higher. 

Fig 1: Chinese Exports Of Vehicles

Source: MNI/Kelly Eckhold/Westpac