BONDS: NZGBs Cheaper At The Margin, Payside In Swaps Continues
A fairly flat start for NZGBs leaves the major benchmarks running ~1.5bp cheaper, as participants assess overnight developments in the wake of Tuesday’s CPI-driven hawkish repricing of RBNZ expectations.
- Swap spreads are a touch wider, with swap rates moving back towards their respective cycle peaks in early Wednesday trade.
- RBNZ dated OIS price a terminal OCR of ~5.25%, just over 10bp shy of yesterday’s post-CPI peak, with a 75bp hike at next month’s meeting fully priced.
- The local docket is empty today, which will leave wider sentiment and headline flow at the fore.
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USD: Goldman Sachs On USD
USD: CPI sets the tone. The very firm CPI report for August showed that decelerating goods prices are being fully offset by strengthening services inflation. In other words, the primary driver of price pressures is transitioning from bottlenecked supply chains to the extremely tight labor market, with this week’s high profile rail union negotiations another example of this dynamic. The market rightly treated the CPI report as a hawkish policy shock—including support for our recommendation to go short NZD/CAD—which is consistent with our findings that the market reacts more to services inflation given its linkages to the labor market. This raises the bar and creates some tactical dovish risk for the Dollar amidst expectations of a hawkish FOMC next week, but ultimately we do not think they will credibly be able to signal a slowdown in the pace of tightening against this inflationary backstop. Given the difficult task ahead, we expect the CPI report to be matched with a determined message from the FOMC, which should support our view that there is still more Dollar strength ahead.
USDCAD TECHS: Clears Key Resistance
- RES 4: 1.3421 High Sep 30 2020
- RES 3: 1.3385 2.0% 10-dma envelope
- RES 2: 1.3338 50.0% retracement of the 2020 - 2021 bear cycle
- RES 1: 1.3308 High Sep 16
- PRICE: 1.3282 @ 20:14 BST Sep 16
- SUP 1: 1.3074/2954 20-day EMA / Low Sep 13
- SUP 2: 1.2895 Low Aug 25 and key near-term support
- SUP 3: 1.2828 Low Aug 17
- SUP 4: 1.2770 Low Aug 15
A USDCAD bullish theme remains intact and last week’s gains have reinforced this theme. Price has cleared resistance at 1.3209, Sep 7 high and 1.3324, the Jul 14 high and a bull trigger. The break of the latter confirms a resumption of the broader uptrend and opens 1.3338 next, a Fibonacci retracement. Note that MA studies remain in a bull mode set-up, highlighting positive market sentiment. Key trend support is at 1.2954, the Sep 13 low.
AUDUSD TECHS: Pierces Key Support
- RES 4: 0.7040 High Aug 16
- RES 3: 0.7009 High Aug 26 and a key short-term resistance
- RES 2: 0.6956 High Aug 30
- RES 1: 0.6824/6916 20-day EMA / High Sep 13 and a key resistance
- PRICE: 0.6709 @ 20:13 BST Sep 16
- SUP 1: 0.6670 Low Sep 16
- SUP 2 0.6647 0.764 proj of the Apr 5 - May 12 - Jun 3 price swing
- SUP 3: 0.6612 Low May 29
- SUP 4: 0.6568 Low May 27 2020
A bearish threat in AUDUSD remains present. The pair traded lower last week and breached support at 0.6699, the Sep 7 low. The focus is on 0.6682, the Jul 14 low, which was pierced Friday A clear break of this chart point would confirm a resumption of the broader downtrend, strengthen bearish conditions and open 0.6647 initially, a Fibonacci projection. The Sep 13 high of 0.6916 marks a key short-term resistance.
