GOLD: Gold - Trades In A $3900-$4100 Range As It Tries To Build A Base

The weakness in the interest-rate sensitive housing & construction sectors despite 250bp of easing since August 2024 and the impact on consumption is an argument for further RBNZ easing possibly even an outsized 50bp cut. While weakness persists, there have been signs in some of the monthly data in Q3 that the sector is at least stabilising. 

• Q2 residential construction volumes fell 2.9% q/q to be down 10.1% y/y and have only risen in one of the last eight quarters, Q1 2025. New dwelling consents rose in both July and August and the 3-month average annual growth rate was 8.2% y/y in the latter, the highest since April 2022.
• The pickup in Q2 private consumption is an argument for a more cautious 25bp rate cut in October. It rose 0.4% q/q to be up 1.5% y/y, the strongest in two years. Retail card transaction values are consistent with a gradual consumer recovery with increases in each of the 3 months to August and annual growth of 1.7%.
• With net inward migration lower, house prices remain weak in line with soft sales. The RBNZ is concerned that the negative wealth effect from this is weighing on household spending but the labour market remains depressed with only 4% of firms expecting to hire in Q4 (QSBO). 

US equities have shown the first signs of the huge rally potentially becoming exhaustive as momentum higher seems to be stalling. This morning US futures have opened pretty muted, E-minis(S&P) +0.01%, NQZ5 +0.03%. The AUD outperformance has also stalled, outside of AUD/JPY which is now challenging above 100.00.

• EUR/AUD - Overnight range 1.7683 - 1.7737, Asia is currently trading around 1.7710. The pair has found some decent demand sub 1.7700. Price remains trendless within its recent 1.7600 -1.8100 range. Look for sellers to fade bounces while the price remains below 1.7850/7900.
• GBP/AUD - Overnight range 2.0338 - 2.0423, Asia is trading around 2.0395. The move lower has stalled back toward its support around 2.0300 where demand has initially returned. The price action of the pair is looking potentially exhaustive but a sustained break sub 2.0300 is needed to open up a deeper pullback towards 1.9800/2.0000. 
• AUD/JPY - Overnight range 99.17 - 100.04, Asia is trading around 100.15. The pair has surged higher for good reason on the election outcome. The pair extended its move higher even with risk wobbling. Dips will now be supported as the focus now turns toward 100 and then beyond.
• AUD/NZD -  Overnight range 1.1338 - 1.1357, the cross is dealing in Asia around 1.1350. The Cross has seen some selling to cap the move above 1.1400 for now, price action suggests we could potentially see more reversion back to the mean but expect dips back towards 1.1200 to now be supported. Depending on how the RBNZ comes out today will impact which side is tested, a 50bps dovish cut would see another challenge above the 1.1400 area.

Fig 1: AUD/JPY spot Weekly Chart

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

In Tokyo morning trade, JGB futures are weaker, -16 compared to settlement levels, and at session lows.

• August labour earnings data in Japan was comfortably below market expectations. Headline earnings rose 1.5%y/y (against a 2.7 forecast and 3.4% July outcome), while real earnings dipped back to -1.4%y/y (-0.5%) was forecast. Real earnings have not been in positive territory (in y/y terms) so far in 2025. This will reinforce expectations of the BoJ likely remaining on hold at the Oct policy meeting.
• Japan's new political regime had already noted that Oct is too soon for a rate hike. BoJ Governor Ueda also noted recently that the risk was low for the central bank to fall behind the inflation/policy curve (with today's data supporting this theme).
• Cash US tsys are flat to 1bp cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s modest rally.
• Cash JGBs are flat to 1bp cheaper across benchmarks, with a steepening bias. The benchmark 10-year yield is 0.9bp higher at 1.694% versus the cycle high of 1.699%.
• Swap rates are 1-2bps higher. Swap spreads are wider.