BONDS: Market Ponders A 50bp Cut After Weak Q2 GDP

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 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.

The Asia-Pac USD/JPY range has been 147.62-148.11, Asia is currently trading around 147.75, -0.10%. USD/JPY continues to find solid demand around 147.00. Price continues to hold above the support area between 146.00/147.00, a sustained move below this support is needed to turn the momentum potentially lower again. While this plays out it looks to be more range trading within the wider 146.00-151.00 range. CFTC Data shows leveraged funds have bought this dip in USD/JPY betting the support remains intact.

• (Bloomberg) - “The pressures on the Fed to again consider defying rates markets and hold next month just received a (rather modest) boost as S&P Global Ratings delivered a solid report card for the US’s economy and outlook. While the firm expects rate cuts are coming, as do most economists, it doesn’t signal any need to rush.”
• “JAPAN VETERAN LDP LAWMAKER KONO: BOJ MUST GRADUALLY RAISE INTEREST RATES AS IT IS UNDESIRABLE TO KEEP REAL BORROWING COSTS NEGATIVE FOR A LONG TIME. 'BETTER TO START EARLY,' WHEN ASKED HOW SOON BOJ SHOULD RESUME INTEREST RATE HIKES. JAPAN MUST REVERSE WEAK YEN, SEEK SOMEWHAT STRONGER YEN.” - RTRS
• "JAPAN 20-YEAR BOND BID-COVER RATIO 3.09 VS 12-MONTH AVG 3.24" - BBG
• (Bloomberg) - “Japanese bonds are having a knee-jerk shift lower after the bid-to-cover ratio came in below its one-year average, even though the average 20-year yield was highest this year at auction. That’s hardly a vote of confidence when the 20-year sector is yielding around 1% more than the benchmark 10-year.”
• Options : Close significant option expiries for NY cut, based on DTCC data: 147.40($301m), 148.35($459m).Upcoming Close Strikes : 146.80($1.2b Aug 21), 147.90($1.42b Aug 22)  - BBG.
• CFTC data shows last week asset managers maintained their JPY longs +60866( Last +60532), leveraged funds used the dip to add to their newly built short JPY position -41257(Last -29308).

Fig 1 : USD/JPY Spot 2HChart

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