NZD: NZD/USD - Finds Demand Toward 0.5750, Bears Looking For This To Break

The BBDXY has had a range today of 1187.69 - 1190.37 in the Asia-Pac session; it is currently trading around 1188, -0.15%. The USD has drifted lower as risk builds on its overnight gains and the market digests Trump's state of the Union speech. The USD continues to chop around with very little direction with the market not sure how to trade the current uncertainty. The market remains bearish overall though so the USD will be very quickly sold if they are given the excuse. Besides the tariff mess the risk of an extended war or a potential limited strike with Iran is something the market is also juggling with. On the day, it looks like 1184-1194 should continue to cover it as the market struggles for some clear direction. 

• EUR/USD -  Asian range 1.1772-1.1794, Asia is currently trading 1.1790. The pair has been consolidating just below the 1.1800 area. The price action remains constructive while it holds above the 1.1750 area. On the day, the first support remains back toward 1.1745-1.765 with the bulls looking for this area to form a base from which to reassert the trend higher. The market is very quick to return to selling USD’s but for now conviction in a direction seems pretty low. The Bulls need the price to break back above 1.1810 first and then the 1.1860 area to start seeing momentum swing back their way.
• GBP/USD - Asian range 1.3488-1.3521, Asia is currently dealing around 1.3515. GBP is trying to bounce off its 1.3450 support and the USD drifting lower is helping. This 1.3450 area looks important for the bulls and it needs to hold for any chance of a base to form. On the day, watch to see if this bounce in the USD gets any momentum. I suspect the range 1.3400-1.3600 holds for now as the market looks for direction.
• Cross asset : SPX +0.05%, Gold $5180, US 10-Year 4.045%, BBDXY 1188, Crude Oil $66.10
• Data/Events : EZ CPI, France Consumer Confidence, Germany GfK Consumer Confidence/GDP, Spain PPI

Fig 1: GBP/USD Spot Daily Chart

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

The NZD/USD had a range today of 0.5961-0.5981 in the Asia-Pac session, it is currently trading around 0.5977, +0.18%. The NZD drifted a little higher in sympathy with the move in the AUD and a USD back under some pressure. The pivotal resistance toward 0.6100-0.6150 continues to cap for now and the dovish read of the RBNZ has delayed its challenge in the short-term. On the day, price remains in the potential 0.5885-0.6015 range, I will be watching to see if the USD bears can regain control. A sustained break back above 0.6015-0.6025 could potentially see another test of the year's highs.

• “New Zealand Central Bank Sold Net NZ$250m in January. RBNZ sold a net NZ$250m in January, according to data released by the central bank on its website.This follows NZ$259m of net NZ dollar sales in December.” - BBG
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5950(NZD408m). Upcoming Close Strikes : 0.5695(NZD577m Feb 27) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 49 Points

Fig 1: NZD/USD Spot Daily Chart

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

ACGBs (YM -4.5 & XM -3.5) are weaker after Jan's inflation report came in above market expectations. It is difficult to find signs of softening underlying inflation pressures. 

• The headline printed at 3.8%y/y, unchanged from Dec (3.7% was the forecast), while the trimmed mean, the RBA's preferred measure of underlying inflation rose 3.4%y/y (against a 3.3% forecast, which was also the Dec outcome).
• The trimmed mean rounded to two decimal places was 3.36% in Jan, from 3.34% in Jan, so only a marginal increase. 
• Cash US tsys are 1-2bps cheaper in today's Asia-Pac session.
• Cash ACGBs are 3-4bps cheaper on the day with the AU-US 10-year yield differential at +68bps.
• The bills strip pricing is -2 to -6, with late whites / early reds weakest.
• RBA-dated OIS pricing firmed across all meetings following today’s data. Pricing shows the probability of a 25bp hike rising from 19% for March (18% pre-data) to 111% by June (99% pre-data) and 166% by December 2026 (150% pre-data).  
• Fireside chat with RBA Governor Bullock at the Melbourne University Faculty of Economics & Business Foundation Dinner tonight (1940 AEST). Tomorrow, the local calendar will see Q4 Private Capital Expenditure.
• The AOFM plans to sell A$800mn of the 2.75% 21 November 2028 bond on Friday.

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