NEW ZEALAND: Recovery Continues But Soft & Uneven, Further Easing Likely

The BBDXY range overnight was 1200.82 - 1203.57, Asia is currently trading around 1202, -0.01%. The USD finally found some support back towards the 1200 area after being heavily sold on the looming shutdown. First support back towards the 1200 area and then 1195. Quarter-end for Asset managers likely to see some USD selling to rebalance portfolios. I thought it would be a tough ask to see any big directional moves this week until the market gets a look at the Payroll number. With this data now at risk the ADP could take on a lot more relevance this week and we could potentially have some outsized moves.

• Bloomberg - “Dollar to Take Its Cue From ADP Data as Shutdown Looms. Wednesday’s ADP report will therefore be treated with unusual seriousness. Once dismissed as unreliable and noisy, the series has proven much more accurate than previously believed following recent payrolls revisions, suggesting it could serve as a valuable substitute if payrolls fail to materialize on Friday.”
• Barchart on X: "U.S. Dollar entering its strongest 2-month period of the year historically." 
• Robin Brooks on X: “Gold is up 15% since Powell's dovish speech at Jackson Hole, even as the Dollar is flat. This is very unusual and says the rise in gold isn't about Dollar debasement but debasement in fiat currencies broadly. Sign of a global debt crisis…”
• Andreas Steno Larsen on LinkedIn - “US Exceptionalism is NOT Dead. Listening to the big banks and major financial media outlets this year, one might have assumed that the US investment case was finished. In reality, the flow of funds data tells a very different story—proving that narrative to be entirely unfounded. I cannot recall another year where the economic consensus and prevailing media narrative have been so comprehensively wrongfooted.” See Graph Below.

Fig 1: Net Foreign Inflows In Equities

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

US equities stalled just ahead of their all-time highs as the market started to ask why a shutdown was good for equities ? This morning US futures have opened slightly lower on our open, E-minis(S&P) -0.05%, NQZ5 -0.10%. The AUD is looking to rebuild momentum higher in the crosses after a period of consolidation.

• EUR/AUD - Overnight range 1.7824 - 1.7891, Asia is currently trading around 1.7830. The pair topped out after multiple failures to extend above 1.7900. Price is still in the middle of its recent 1.7600 -1.8100 range. Expect sellers to fade bounces while price remains below 1.8000, a move below 1.7750 would signal a test of the bottom of the range.
• GBP/AUD - Overnight range 2.0399 - 2.0488, Asia is trading around 2.0420. The pair has seen supply return on every look above 2.0500, I suspect rallies back to 2.0550/0650 will continue to be met with supply. The price action of the pair is looking potentially exhaustive but a sustained break sub 2.0300 is needed to open up a deeper pullback towards 1.9800/2.0000. 
• AUD/JPY - Overnight range 97.53 - 97.82, Asia is trading around 97.75. The pair found solid demand back towards 97.00 and bounced last week with the help of the AU CPI print. While above 97.00 the focus will remain on September’s highs toward 98.50.
• AUD/NZD -  Overnight range 1.1338 - 1.1386, the cross is dealing in Asia around 1.1385. The Cross has broken above the multiple highs around the 1.1200 area and has accelerated up towards 1.1400. I would think this 1.1400/1.1500 would initially be met with sellers and expect some work to be done up here before another extension higher.

Fig 1: AUD/NZD spot Weekly Chart

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

European natural gas fell 2.1% to EUR 32.00 on Monday but is still up 1.2% in September and remains in the range that it has traded in this month (31.36/33.44) given uncertainties around the Russian outlook. It reached a high of EUR 32.43 before falling to EUR 31.95. Storage refilling ahead of the heating season has continued with it reaching 82.5% full. This and softer demand from China have kept gas prices subdued.

• Europe is looking to bring forward its plans to end Russian gas consumption by a year to end 2026. While pipeline flows are minimal, imports of Russian LNG have increased. With the war in Ukraine continuing, further sanctions seem likely with President Zelenskyy stating they could be announced this week.
• There have been minimal supply disruptions with Gulf gas rigs so far avoiding storms and Norwegian output returning as expected after scheduled maintenance.
• US gas rose 1.8% to $3.275 on Monday to be down 1.7% in September. It reached a monthly low of $3.055 on 23 September and has trended higher since then. There are forecasts for warmer weather in early October and thus expectations of increased cooling demand. NatGasWeather also said that there could be increased demand for LNG output.
• US lower-48 gas production was up 6.5% y/y on Monday while demand rose 4.6% y/y. Estimated flows to LNG export facilities rose 8.8% w/w, according to BNEF gas data.
• Kpler data is indicating that China’s LNG imports fell more than 20% y/y in September. However, it continues to take shipments from Russia’s sanctioned Arctic LNG 2 facility.