EM ASIA CREDIT: China: New USD dual-tranche bookstats

The BBDXY range overnight was 1203.42 - 1207.79, Asia is currently trading around 1204, +0.05%. The USD got a welcome reprieve from the surge in USD/JPY, after failing to build any downward momentum below 1200 once more can the USD build on this? The USD has historically not done well during shutdowns, but tends to bounce back quite hard when they eventually end so the market will be waiting for any signs of a breakthrough. The 1215-1225 area remains tough resistance, only a close back above 1230 would start to get USD shorts to challenge their conviction.

• Bloomberg - “Dollar’s Haven Appeal Returns Amid Global Political Chaos. As France stumbles and Japan is seemingly doubling down on easy money, the dollar’s relative stability looks like a case for strength.”
• Barchart on X: "U.S. Dollar entering its strongest 2-month period of the year historically." 
• “Dollar to Retain Command as IMF Data Defies April Panic. What actually unfolded was less about dumping Treasuries and more about buying the “rest of the world.” IMF COFER data, which shows the composition of central bank reserves, confirms that there was no abrupt selling of dollars in the second quarter. In fact, official USD reserves rose in absolute terms following the April tariff shock.” - BBG

Fig 1: BBDXY Daily Chart

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

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• After Q2 GDP fell 0.9% q/q, more than the RBNZ’s -0.3% projected in August, expectations of a 50bp rate cut increased.  Now 10 out of 25 analysts surveyed by Bloomberg are forecasting 50bp of easing on 8 October.
• The weaker GDP print means that there was more excess capacity in the economy than the RBNZ assumed in August, but the data are prone to large revisions and so it may want to stick to the 25bp rate cuts for October and November signalled in August.
• Two MPC members voted for a 50bp rate cut at the last meeting but recent and upcoming personnel changes on the committee add to the uncertainty around the October decision.  
• 36bps of easing is priced for Wednesday’s meeting, with a cumulative 63bps by November 2025.

*Updated source for the chart 

Earlier remarks from US President Trump via Truth Social suggested there was a willingness to negotiate with the Democrats around healthcare, as the US government shutdown continues. Trump did lay blame for the shutdown with the Democrats and also stated they should re-open the government immediately. Comments from Democrat leaders for both the House and the Senate stated that talks have not yet begun but that are open to negotiations with the US President. Headlines crossed a little while ago from US Republican Johnson (who is the House Speaker) that an end to shutdown this week was unlikely. Still, Trump stated to Newsmax that progress was being made on ending the shutdown. 

• The chart below looks at market odds on likely government shutdown length, per Polymarket. The white line on the chart is the shutdown odds for 30 days or more. The orange line is the shut down odds for 10 to 29 days.
• So, the firmer odds are with the shut down lasting 10-29 days, while the shutdown odds for 30-days or more have ticked down slightly, likely in light of recent comments. The shutdown odds lasting for 4-9 days are sub 5.
• At this stage, markets are taking the shutdown in their stride, with equity sentiment remaining very buoyant, while US Tsy yields track recent ranges. All else equal the longer the shutdown lasts the bigger the impact it can be on US growth. 

Fig 1: US Government Shutdown Odd Length, 10-29 Days (Orange Line), 30 Days or More (White Line) 

Source: Bloomberg Finance L.P./MNI