FOREX: JPY Sold, AUD & GBP Bought Per CFTC
Yen selling was a notable standout in last week's CFTC positioning update. Leveraged players added to existing shorts, while asset managers cut back on yen longs (see the table below). This is up to Tuesday last week (Sep 16th). USD/JPY price action saw a sharp move lower last Wednesday sub 146.00, but we quickly recovered and track near 148.00 in latest dealings. Friday's BoJ outcome was as expected in terms of rates on hold, albeit with some hawkish dissent. The tightening bias remains, although uncertainty prevails on timing.
- AUD/USD shorts being cut back by asset managers was the other notable feature from last week's CFTC update. The +27k in net buying saw shorts cut back to -41k. A renewed focus point is around hedging by local pension funds of offshore assets. There has been some sell-side focus on this being a AUD support point, while the RBA's Hauser also noted that rising FX hedging is also a longer term risk for such flows.
- Elsewhere, we saw GBP in demand, with leveraged players added to longs, while asset managers cut back on GBP shorts by 25k.
- For NZD, leveraged and asset manager players were net sellers of NZD. Interestingly this came ahead of Thursday's Q2 GDP disappointment last week.
- CFTC positioning shifts are showing a clear bias in favor of AUD over NZD at this stage. The AUD/NZD cross has broken higher, last near 1.1255.
Table 1: CFTC Positioning Change & Outright Position By Major Currency
| Leveraged Contracts | Asset manager Contracts | |||
| Weekly Change | Outright Position | Weekly Change | Outright Position | |
| JPY | -9220 | -58811 | -16077 | 71162 |
| EUR | -642 | 8195 | 4428 | 413192 |
| GBP | 8781 | 29793 | 25717 | -44709 |
| AUD | 3562 | -1519 | 27238 | -41095 |
| NZD | -3453 | -5327 | -8812 | -11933 |
| CAD | -194 | -47864 | 6311 | -58722 |
| CHF | -1837 | -1789 | 6984 | -35323 |
| MXN | 7114 | 36111 | 2567 | 40238 |
Source: CFTC/Bloomberg Finance L.P./MNI
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FED: NatWest Now Sees Cuts In 2025, Starting In September
As with Deutsche earlier, NatWest has changed its Fed call after the Powell Jackson Hole speech to reflect a 25bp September cut. Previously, the call was for no cuts in 2025. The new baseline outlook includes further 25bp cuts in December and March, bringing rates closer to neutral ("however, the changing composition of the committee becomes far less clear once Powell term expires in May").
- "While the August jobs and CPI reports will be watched carefully, it is clear to us that Powell has already seen enough to decide renewed action to counter downside economic risks is likely warranted, and so we now look for a 25 basis point rate cut on September 17th.
- "We expect officials will very much downplay the likelihood of a 50bp rate cut leading up to the jobs data, but we have to admit if the report is "weak enough" (e.g., the unemployment rate increases by 0.3pct to 4.5% (where officials had it at year end) anything can happen and wouldn't rule anything out. However, given the latest pivot and with financial markets pricing (86% of a 25bp rate cut) a lot has to happen (unemployment rate 3-handle and core CPI +0.5%) for the FOMC to undeliver and hold off from a rate cut in September. "
USDCAD TECHS: Bull Cycle Hindered
- RES 4: 1.4111 High Apr 10
- RES 3: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.3968 High May 20
- RES 1: 1.3925 High Aug 22
- PRICE: 1.3840 @ 16:55 BST Aug 22
- SUP 1: 1.3794 20-day EMA
- SUP 2: 1.3769/22 50-day EMA / Low Aug 22
- SUP 3: 1.3576 Low Jul 23
- SUP 4: 1.3557/40 Low Jul 3 / Low Jun 16 and the bear trigger
Gains this week in USDCAD and the breach of resistance at 1.3879, the Aug 1 high, marked a positive development, however the slippage into the Friday close undermines this sentiment - for now. Moving average studies have crossed and are in a bull-mode position, reinforcing current conditions. An extension higher would signal scope for a climb towards 1.4019, a Fibonacci retracement. On the downside, support to watch lies at 1.3769, the 50-day EMA - a level not yet challenged by the correction lower.
CANADA: Q2 Expected To See GDP Contraction, BOC's Estimate Looks Too Negative
The June retail sales release helps wrap up the last major data before Canadian Q2 GDP is released on Friday August 29.
- Current Bloomberg analyst consensus shows Q2 is expected to show a 0.7% Q/Q annualized contraction, versus +2.2% in Q1. The private sector consensus is more optimistic than the Bank of Canada's -1.5% estimate in its July Monetary Policy Report (which MNI thinks is too low) but the component-by-component breakdown is similar if of differing magnitudes.
- Widely expected are: a softening in household consumption growth (+1.2% in Q1), with a pickup in government spending, continued weakness in fixed investment (-3.0% in Q1) though with residential outperforming business capital formation, and a reversal of Q2's positive contribution from net exports. In short, the data are expected to confirm that trade activity was brought forward to Q1 ahead of tariffs, with the effects reversing in Q2.
- Going forward, the BOC envisages growth resuming in Q3 (+1.0% in its "current tariff" scenario). In the meantime, a weak Q2 reading could provide Governing Council with more conviction to resume easing rates in September, with the July meeting decision noting "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate".
