NZD: Asia Wrap - Very Weak GDP Sees NZD Underperform Across The Board
The NZD/USD had a range of 0.5911 - 0.5968 in the Asia-Pac session, going into the London open trading around 0.5920, -0.80%. The very weak GDP data this morning points to a poor backdrop for growth and increases the chance of larger rate cuts. The NZD rejected the 0.6000 area and looks set to potentially move lower now, I suspect some demand will reemerge back towards the 0.5900 area first up, through here and the pivotal 0.5800 support looms. The trend against the USD is a little harder to predict but the NZD underperformance in the crosses is beginning to gain real momentum.
- MNI AU - NZ Q2 GDP, Very Weak Growth Increases Chance Of Larger Rate Cut: Both the production and expenditure-based GDP measures fell 0.9% q/q in Q2, the weakest since the pandemic. The RBNZ had expected a 0.3% q/q decline. This and the broad-based softness across sectors as well as a sluggish recovery in Q3 to date are likely to drive 25bp rate cuts in October and November in line with the RBNZ’s August OCR path. With two votes for a 50bp cut in August, the risk of a larger move before year end is material.
- Bloomberg - Westpac Sees Kiwi Falling to 58 US Cents on Deep RBNZ Rate Cuts. Westpac now expects RBNZ to cut by 50bps at its Oct. meeting and another 25bps in November to bring the official cash rate to 2.25%. They entered a short NZD/USD position “targeting 0.5800 or lower". "The USD leg has already priced in an aggressive easing cycle, and there is no top-tier US data until GDP”.
- “ASB BANK NOW SEES RBNZ CUTTING CASH RATE TO 2.5% IN OCTOBER, NOW SEES RBNZ CUTTING CASH RATE TO 2.25% BY YEAR END" - BBG
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5935(NZD737m). Upcoming Close Strikes : 0.6020(NZD 374m Sept 22) - BBG
- AUD/NZD range for the session has been 1.1143 - 1.1241, currently trading 1.1210. The Cross is breaking above the multiple highs around the 1.1200 area and is looking to accelerate higher on the back of some very poor Q2 GDP data. Dips should now continue to be supported as the move higher begins to gather pace.
Fig 1: NZD/USD Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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BONDS: NZGBS: Closed Cheaper Ahead Of Tomorrow’s RBNZ Policy Decision
NZGBs closed near session cheaps, with benchmark yields 4bps higher.
- The RBNZ meets on Wednesday, August 30 and is likely to cut rates 25bp to 3.0%, the mid-point of its estimated "neutral" range. While it paused at the July meeting, it was with a clear easing bias.
- With the cut widely forecast, attention will be on the revised RBNZ outlook and tone of the statement and press conference. The focus is likely to be on the projected OCR path and whether it is revised lower, suggesting further easing towards stimulatory territory as excess capacity persists.
- With the focus on the medium-term, the 2026 and beyond inflation forecasts will be the important ones and should remain around the 2% band mid-point. See MNI Preview here:
- On Thursday, Governor Hawkesby will appear before a parliamentary committee to talk about the latest Monetary Policy Statement.
- Swap rates are 5-6bps higher.
- RBNZ dated OIS pricing closed firmer across meetings. 23bps of easing is priced for tomorrow, with a cumulative 39bps by November 2025.
- On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% May-30 bond, NZ$175mn of the 4.50% May-35 bond and NZ$50mn of the 1.75% May-41 bond.
NZD: Asia Wrap - NZD/USD Consolidates Above 0.5900
The NZD/USD had a range of 0.5917 - 0.5929 in the Asia-Pac session, going into the London open trading around 0.5925, +0.05%. US rates extended higher looking towards Powell's speech at Jackson Hole later in the week, this has seen the USD see some demand return as the market pares back risk going into it. The NZD/USD again found some demand back towards 0.5900 and is consolidating just above there. While still firmly in the 0.5850-0.6150 range it's tough to discern any real direction, though risks are slightly skewed to more USD upside as positions are lightened heading in Jackson Hole. Risk has traded a little lower this morning, E-minis -0.20%, NQU5 -0.25%.
- MNI RBNZ Preview-August 2025: Rate Cut, Focus On OCR Path. The RBNZ meets tomorrow and is likely to cut rates 25bp to 3.0%, the mid-point of its estimated "neutral" range. While it paused at the July meeting, it was with a clear easing bias.
- With the cut widely forecast, attention will be on the revised RBNZ outlook and tone of the statement and press conference. The focus is likely to be on the projected OCR path and whether it is revised lower suggesting further easing towards stimulatory territory as excess capacity persists.
- With the focus on the medium-term, the 2026 and beyond inflation forecasts will be the important ones and should remain around the 2% band mid-point.
- RBNZ-dated OIS pricing is slightly firmer across meetings with 23bps of easing priced for tomorrow’s meeting, with a cumulative 41bps by November 2025.
- “NZ 2Q PRODUCER OUTPUT PRICES RISE 0.6% Q/Q" - BBG
- Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5925(NZD400m Aug 20), 0.5980(NZD660m Aug 21). - BBG
- CFTC Data shows Asset Managers have cut their longs completely and started to rebuild a short adding slightly in the NZD -3679(Last -1811), the Leveraged community though reduced their own shorts slightly -4190(Last -6778).
- AUD/NZD range for the session has been 1.0952 - 1.0974, currently trading 1.0955. The Cross is trying to push higher but continues to stall back towards 1.1000 and will need a sustained break here to potentially extend. Until then the range looks to be 1.0850-1.1000.
Fig 1: NZD/USD Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
GOLD: Gold Range Trading Ahead Of Powell’s Friday Speech
Gold continues to range trade falling to a low of $3326.25/oz early in the session before rising to $3341.67. It is currently up 0.1% to $3337.5. It has not reacted to the progress made in talks between the US and Ukraine/Europe and the prospect of Presidents Zelenskyy and Putin meeting. The US dollar and US yields are also little changed. The outlook for the Fed remains the market’s focus with Chair Powell scheduled to speak on Friday at the Jackson Hole central bank conference.
- Despite recent narrow ranges, gold is still seen as having upside with UBS forecasting it to reach $3700/oz by mid-2026, according to Bloomberg.
- Silver is down 0.2% to $37.945 but off the intraday low of $37.735. It is up 3.4% in August.
- Equities are mixed with the S&P e-mini down 0.2% and Nikkei -0.2% but Hang Seng up 0.2% and Straits Times +0.6%. Oil prices have continued their downtrend after stabilising Monday with WTI -0.7% to $62.99/bbl. Copper is 0.2% higher.
- The Fed’s Bowman speaks and US July housing and Canadian July CPI data are released.
