JGBS: Mostly Cheaper With A Steeper Curve

RBNZ-dated OIS pricing closed 5-8bps softer across meetings following today's Q2 CPI data.. 

• NZ CPI rose less than economists expected in Q2. Headline CPI rose 0.5% q/q 2.7% y/y (estimate +0.6% and 2.8%). Tradeables rose 0.3% q/q, less than forecast, while non-tradeables were in line at 0.7% q/q.
• 21bps of easing is priced for August, with a cumulative 37bps by November 2025 versus 16bps and 30bps prior to the data.

Figure 1: RBNZ Dated OIS Post-CPI vs. Pre-CPI (%)

Source: Bloomberg Finance LP / MNI 

The NZD/USD had a range of 0.5939 - 0.5971 in the Asia-Pac session, going into the London open trading around 0.5950, -0.20%. A better than expected CPI print has seen the NZD move a little lower across the board. This 0.5850/0.5900 area is important support if the pair is to eventually push higher, a weekly close below 0.5850 would turn the picture quite bearish. Price will need a sustained break back above the 0.6025/50 area to signal a potential base might be in place.

• “RBNZ 2Q SECTORAL FACTOR MODEL INFLATION INDEX RISES 2.8% Y/Y" - BBG, Note the Q1 rise was 2.9%y/y for the sectoral inflation model. 
• MNI NEW ZEALAND: Inflation Low Enough For August Cut, While Q2 NZ headline CPI picked up 0.2pp to 2.7% y/y, it was less than expected and only 0.1pp above the RBNZ’s May forecast and so well within usual errors. Thus the RBNZ is likely to cut rates 25bp when it announces its decision on August 20. There was also a moderation in domestically-driven non-tradeables inflation to its lowest in four years.
• NEW ZEALAND: VIEW: Westpac Thinks CPI Was Lower Than RBNZ Expected, Aug Rate Cut. Westpac believes that while the quarterly rate was in line with the RBNZ’s May forecast, its “July policy statement indicated that they were braced for a stronger result”. It continues to expect a 25bp rate cut at the August 20 meeting.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5905(NZD380m). Upcoming Close Strikes : 0.5750(NZD348m July 23). - BBG
• CFTC Data shows Asset Managers slightly reduced their newly built longs in NZD +8192, the Leveraged community has continued to reduce their shorts last week -6744.
• AUD/NZD range for the session has been 1.0909 - 1.0950, currently trading 1.0935. The cross moved higher this morning in response to the NZ CPI. Dips back to 1.0850/1.0900 should continue to find support as the pair tries to build momentum to move higher. 

Fig 1: NZD CFTC Data

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

After rising a moderate 0.3% on Friday, gold prices are +0.2% during today’s APAC trading following a variety of Fed views on the impact of tariffs and thus on rates. Fed Chair Powell gives some opening remarks on Tuesday. Bullion reached a high of $3358.63/oz earlier in the session but has now eased to $3355.9 to be up around 1.6% in July. The US dollar today is also fairly steady in today’s session.

• Geopolitical uncertainty remains high with the EU set to meet with Iran this week to discuss its nuclear programme and numerous trade talks with the US continuing ahead of an August 1 deadline.
• The bull cycle begun on June 30 is intact with bullion up 1.6% this month. Medium-term trend conditions are bullish. Initial resistance is at $3377.4, 16 July high, with the bull trigger at $3500.1. The bear trigger is at $3248.7.
• Silver is 0.1% higher at $38.21 down from the intraday high of $38.33. It is now up 5.7% in July. Technical signals continue to point to an uptrend as the metal remains above key short-term resistance at $37.32. Moving average studies are also in a bull mode. Initial resistance is at $39.13, 14 July high, while support is at $36.98, 20-day EMA.
• Equities are mixed with the S&P e-mini up 0.1%, Hang Seng +0.3% but the ASX down 1.1%. Oil prices are moderately higher with WTI +0.3% to $67.52/bbl. Copper is down 0.1%. UST futures aren’t trading due to a holiday in Japan.
• Later the US June leading index and Bank of Canada Q2 outlook survey are released.