OIL: Middle East Risks Ease, Geopolitical Focus On Ukraine-Russia

The NZD/USD had a range of 0.5937 - 0.5949 in the Asia-Pac session, going into the London open trading around 0.5845, +0.10%. US rates extended lower again and the USD traded soft, the headwinds for the USD seem to be compounding which points to a potential look below its support. The NZD has bounced into what should be the perfect zone to fade for bears, the price action for the USD though gives me pause. CFTC Data shows light positioning in a market that is struggling for a strong trend as we move back into the middle of the recent 0.5800-0.6100 range.

• (Bloomberg) -- “New Zealand’s main opposition Labour Party is open to having a discussion about the RBNZ’s 1-3% inflation target, the NZ Herald reports.”
• Q2 Data Suggesting Weak GDP Outcome: Q2 NZ business sales values rose 2.1% q/q with profits up 4.2%. Salaries and wages rose only 1.2% q/q. Manufacturing volumes fell 2.9% q/q after rising 2.4%. Q2 GDP is released on September 18 and the RBNZ is forecasting it to fall 0.3% q/q. Data has shown weak building, goods exports and manufacturing volumes. The RBNZ is expected to cut rates at its October and November meetings.
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5800(NZD515m Sept 10), 0.5870(NZD320m Sept 10) - BBG
• CFTC Data of last week shows Asset Managers added slightly to their new short position in the NZD -5127(Last -4743), the Leveraged community have completely exited their short and have turned a fraction long +285(Last -225).
• AUD/NZD range for the session has been 1.1093 - 1.1105, currently trading 1.1100. The Cross is consolidating around 1.1100, dips back towards 1.1000/1.1050 should be supported now.

Fig 1: NZD/USD Spot Daily Chart

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

Aussie bond futures sit off earlier highs, consistent with some softness in US Tsy futures, while locally today sentiment data outcomes were mixed. The 10yr future (XM) was last at 95.705, up 1bps, but against earlier highs of 95.74. 3yr futures sit down a touch, last near 96.555 (earlier highs were at 96.59). 

• In the cash ACGB yield space we are up from earlier lows. The 3yr has ticked back up to 3.43%, while the 10yr is near 4.26%, only down 1bps for the session. Both yields were around multi week lows in the first part of trade.
• The 3/10s curve is holding flatter at +84bps.
• On the data front, Westpac consumer sentiment fell 3.1% m/m to 95.4 in September after August’s robust +5.7% m/m to 98.5. It remains in pessimistic territory but above the 2025 average helped by 75bp of monetary easing and lower inflation.
• August NAB business confidence fell to +4 from +8 but conditions improved to +7 from +5. Both have improved in Q3 to date by around 3 points signalling that GDP growth should continue to recover. The price/cost components were lower in August with purchase cost and retail price increases at multi-year lows, which should reassure the RBA.

The Asia-Pac USD/JPY range has been 147.16-147.58, Asia is currently trading around 147.20, -0.20%. USD/JPY could not hold onto the gains it made in early Asian trading yesterday and ended up filling in the gap. The support towards 146.00 comes back into view, it has been solid for most of July and August, can it continue to hold as the USD’s own support begins to look precarious. CFTC data shows leveraged funds again added a decent clip to their short JPY position last week so the inability for the price to extend yesterday would be disconcerting, a move back below 145/146 is needed to potentially start seeing these positions being flushed out.

• Value Seeker on X: “The Japanese Yen remains highly undervalued relative to most currencies, including the US Dollar, which trades 50% (3 st. dev.) above its purchasing power parity against the Japanese currency.” See Graph Below.
• Bloomberg - “Japan’s Kono Says BOJ Needs to Hike Rate to Fix Yen, Inflation. The Bank of Japan should raise its benchmark rate to support the yen and curb inflation, Liberal Democratic Party lawmaker and former digital transformation minister Kono Taro said, as political uncertainty clouds the outlook for economic policy.”
• "KATO: MULL IMPACT OF TARIFFS, OPPOSITION VIEWS FOR ECO PACKAGE, PRICE RELIEF IS NEEDED TO PROTECT LOW-INCOME HOUSEHOLDS” - BBG
• "JAPAN LDP DECIDES TO HOLD 'FULL-SPEC' LEADERSHIP VOTE: NTV" - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 147.00($931m), 147.50($521m).Upcoming Close Strikes : 145.75($1.12b Sept 11), 150.00($1.11b Sept 11)  - BBG..
• CFTC data shows last week asset managers again added to their JPY longs after a consistent period of reduction +78427( Last +76761), leveraged funds though again used the dip to add a decent clip to their newly built short JPY position -66914(Last -52275). One of them is going to be wrong.

Fig 1 : JPY Undervaluation Vs USD(based on PPP)

Source: MNI - Market News/@ValueSeeker_/OECD