NZD: Reaction To Unemployment Rate

AUDUSD underperformed most of the G10 oscillating around 66c on Friday. It reached a low of 0.6589 in late APAC trading and then trended higher to 0.6614. The pair finished 0.1% higher at 0.6604 and has started today down to 0.6593. The USD index was 0.1% lower. 

• AUDNZD moved lower through Friday to be down 0.1% to 1.1325 after a low of 1.1317. It is currently around 1.1321. The RBNZ is widely expected to cut rates this week but analysts are split between 25bp and 50bp.
• AUDJPY rose 0.2% to 97.348 after reaching 97.502. It is currently around 98.40 after conservative Takaichi’s win of the LDP leadership. Previously she had been critical of BoJ rate hikes.
• The pound outperformed on Friday leaving AUDGBP down 0.2% to 0.4898. AUDEUR was 0.1% lower at 0.5624 and is currently around 0.5622.
• Equities were little changed with the S&P flat and Euro stoxx up 0.1%. Oil prices were higher with Brent +0.4% to $64.36/bbl. Copper rose 2.7% and iron ore is around $103.70/t.
• Much of Australia is closed for a holiday but the ASX is open. The Melbourne Institute’s September inflation gauge prints today. 

• RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
• RES 2: 96.685 - 1.000 proj of the Sep 3 - 12 - 15 price swing 
• RES 1: 96.615 - High Sep 12  
• PRICE: 96.430 @ 15:48 BST Oct 03
• SUP 1: 96.280 - Low May 15 (cont.)  
• SUP 2: 95.900 - Low Jan 14 (cont.)
• SUP 3: 95.760 - Low 14 Nov ‘24

Aussie 3-yr futures have traded lower and the contract has cleared the Sep 3 low of 96.435. A break of this level negates the recent short-term bullish theme. This breach signals scope for an extension towards 96.280, the May 15 low on the continuation chart. The short-term resistance to watch is 96.615, the Sep 12 high. Clearance of this level is required to reinstate a bullish theme.  

Market pricing at the end of last week, priced in a BoJ Oct rate hike at a close to 58% (per WIRP on BBG). The implied rate was a touch above 0.62%, against a current effective policy rate of 0.477%. A full 25bps hike is not priced until the Jan/Mar meetings of next yea (implied rate of 0.75% for March 2026 meeting). For the Sep 2026  contract we sat at 0.96%. Focus in the first part of trade today will be on fallout from Takaichi's surprise LDP election victory on Saturday. The expected new PM has been vocal in her criticism of BoJ policy hikes in the past, although the stance softened during this recent LDP leadership campaign.  

• Most notably from 2024 (when Takaichi competed for the leadership position with Ishiba), she stated raising rates was stupid. However, more recently she stated that the BoJ should keep rates unchanged (via BBG). She added that the government should set the direction for fiscal and monetary policy.
• Headlines that crossed in the aftermath of her victory on Saturday stated she believes that the BOJ and the government must work closely together on economic policy and that the government would need to consider if the current accord with the BOJ is the best (via BBG).
• From a sell-side standpoint, SocGen noted after the leadership result: "We had previously predicted the BoJ's next rate hike would occur in October, but given (1) the result of yesterday's LDP presidential election and (2) the US government shutdown and growing concerns about a further economic downturn, we changed our forecast to December."
• Goldman Sachs didn't see major implications in the near term for its viewpoint: "We believe the outcome of this LDP presidential election will not have a significant impact on the BOJ's monetary policy for the time being. This is because the impact of tariff hikes has started to appear in the data, such as a decline in manufacturers' recurring profits, and under these circumstances, we expect the BOJ to leave the policy rate unchanged for the time being from a risk management perspective. We continue to expect a rate hike in January 2026 as our base case scenario, with a rate hike in December this year as a sub-scenario."  
• Looking ahead, Takaichi's remarks will be scrutinized closely. On the data front, we get Aug household spending figures tomorrow, then on Wednesday labor earnings data is out.