GOLD: Gold Steadies On US Reassurance & Silver Correction, At Overbought Levels

In local morning trade, NZGBs are 1-3bps cheaper after US tsys finished the Friday session with modest losses.

• There was a muted reaction to lower-than-expected UofM sentiment, 1Y inflation steady while 5-10Y inflation expectation rose: 3.9% (cons 3.4) in Sep prelim after 3.5% in Aug.
• Previously, such an upside for long-term inflation expectations would have sparked a market reaction, but not this time. We suspect it was because preliminary readings for August and less so July were marked lower in the final.
• Consumer sentiment surprised lower in the UofM preliminary September report, at 55.4 (cons 58) after 58.2 in Aug.
• The NZ performance of services index fell to 47.5 in August from 48.9 in July.
• The focus of the week will be on Thursday’s Q2 GDP data release. Bloomberg consensus is in line with the RBNZ’s August forecast of -0.3% q/q, bringing the annual rate to flat after declining 0.7% y/y in Q2. 25bp rate cuts are expected at both the October 8 and 26 November meetings.
• Swap rates are 1-2bps higher.
• RBNZ dated OIS pricing is little changed across meetings. 22bps of easing is priced for October, with a cumulative 40bps by November 2025.

The Friday night range was 147.24-148.07, Asia is currently trading around 147.70. USD/JPY continues to trade sideways with no clear trend. The price remains in the middle of its recent 146-149 range, and we need a convincing break to see a clearer direction again. CFTC data shows leveraged funds paring back some of their extended short JPY position last week,  they remain core short looking for this support to continue to hold. A move back below 145/146 is needed to potentially start seeing these positions being flushed out.

• MNI INTERVIEW: Powell Won't Signal String Of Fed Cuts-Lockhart. Federal Reserve Chair Jerome Powell will justify next week’s widely expected interest rate cut by citing rising downside risks to employment but refrain from signaling a string of cuts beyond September because the Fed must also contend with inflation heading in the wrong direction, former Atlanta Fed President Dennis Lockhart told MNI. 
• Bloomberg - “The Bank of Japan is set to hold at its meeting on Sept. 19, given all the turbulence in domestic politics. But a CPI report due the same day will show inflation running hot — reinforcing the case for it to continue to withdraw stimulus. We expect the BOJ to hike rates next month, though political developments cloud the path.”
• Options : Close significant option expiries for NY cut, based on DTCC data: 150.00($1.04b).Upcoming Close Strikes : 146.00($1.41b Sept 16), 150.00($1.49b Sept 16), 145.70($1.22b Sept 17) - BBG.
• CFTC data shows last week asset managers again added to their JPY longs again as they look to rebuild their position +87239( Last +78427), leveraged funds reduced their short position perhaps losing confidence the support will continue to hold -49591(Last -66914). 

Fig 1 : USD/JPY Spot 2H Chart

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

In the week ending Sep 9 (last Tuesday) the bias from the CFTC FX positioning update was to sell the USD. The standout last week was JPY buying. In the leveraged space, we saw +17.3k of JPY buying, which cut the outright short to under 50k. On the asset manager side, net longs were added to by +8.8k. This comes as broader USD sentiment remains softer amid rising Fed easing expectations. Still, USD indices, while softer, haven't broken definitely lower (the BBDXY remains above July lows, last near 1198.3). For USD/JPY, last Tuesday (which was the CTCF reference period), marked the recent low point for USD/JPY with the pair unable to test back under 147.00 since then. 

• EUR/USD longs were added to in both the leveraged and asset manager space. GBP trends were mixed, little change in leveraged positioning, while asset managers cut pound shorts.
• For the AUD, we saw leveraged investors cut back on shorts, as AUD/USD consolidated above 0.6600. Still, asset managers were happy to maintain shorts.
• Elsewhere, aggregate positioning shifts weren't large, with NZD seeing largely offsetting flows between leveraged investors and asset managers. For CAD, modest selling was evident, adding to existing outright shorts. 

Table 1: CFTC Positioning Change & Outright Position By Major Currency 

Source: CFTC/Bloomberg Finance L.P./MNI