FOREX: USD Index To Fresh Weekly Highs As Oil Spikes On Sanction News

The NZD/USD had a range of 0.5849 - 0.5870 in the Asia-Pac session, going into the London open trading around 0.5850, -0.30%. The NZD has drifted lower in Asia giving back most of its overnight gains. The USD retracement stalled overnight as sellers reemerged even with some clearly hawkish rhetoric from Fed speakers overnight. The NZD underperformance got a real nudge from the poor GDP data last week. The initial move lower seems to be stalling for now but I suspect sellers would remerge should the Kiwi bounce back towards the 0.5925/50 area. The 0.5800 is important support, I suspect we will see buyers towards this area initially but a sustained break through there would turn the focus back towards the 0.5500 lows.

• Bloomberg - “New Zealand is set to name a foreigner to head the RBNZ, a person familiar said. Bank of New Zealand said there is a growing likelihood it’s BOE deputy governor Sarah Breeden.”
• “RBNZ Watchers to Assess If New Governor Is Technocrat: CA-CIB. “A key question would be whether the new governor would be a technocrat who focuses on delivering on the RBNZ’s inflation mandate or someone who works more closely with the government to prop up the economy.” - BBG
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5900(NZD372m Sept 24) - BBG
• CFTC Data of last week shows Asset Managers beginning to rebuild their short positions in the NZD, -11933(Last -3121). The Leveraged community is doing the same as it looks to rebuild its own shorts, -5327(Last -1874). Positioning shows the market is again turning bearish on the NZD..
• AUD/NZD range for the session has been 1.1240 - 1.1260, currently trading 1.1255. The Cross has broken above the multiple highs towards the 1.1200 area and is looking to accelerate higher on the back of some very poor NZ Q2 GDP data last week. Dips should now continue to be supported as the market turns its focus towards the 1.1400/1.1500 area.

Fig 1: NZD/USD Spot Daily Chart

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

The USD/JPY range has been 147.60 - 147.87 in the Asia-Pac session, it is currently trading around 147.80, +0.05%. USD/JPY stalled above 148.00 overnight and continues to chop around sideways without really going anywhere. The USD retracement stalled as sellers reemerged even with some clearly hawkish rhetoric from Fed speakers overnight. The price is still in the middle of its recent 146-149 range, and we need a convincing break on either side to see some clearer direction again. Neither the FOMC nor the BOJ were able to provide any clarity, the market will start turning its focus towards payrolls which seems a lifetime away.

• Bloomberg - “Deutsche Bank Says Dollar to Extend Drop Against Yen This Year.  George Saravelos, head of FX research anticipates more weakness for the dollar, predicting that it will fall below 140 yen by year-end. Says the need to address inflation in Japan is growing. BOJ rate hikes at a time when the Fed is cutting should support the yen, he says. “Starting from a very undervalued position, the yen has a long runway provided the political pieces fall into place following the upcoming LDP election”
• Koizumi Still Seen As Favorite For LDP Leadership Race : Koizumi continues to lead, last at highs of 70 (since the LDP election was called a few weeks ago). Koizumi noted earlier today: “MUST BE MINDFUL OF NEED FOR FISCAL DISCIPLINE, BUT ACHIEVING SOLID ECONOMIC GROWTH IS BASIS FOR GUIDING SOUND FISCAL POLICY” - RTRS
• "JAPANESE PM CONTENDER TAKAICHI: WILL USE TAX REVENUES TO FUND TAX CUT, SPENDING FOR STEPS TO COMBAT RISING PRICES BUT IF NECESSARY, SHOULD ISSUE BONDS.” - RTRS
• Options : Close significant option expiries for NY cut, based on DTCC data: 145.00($856m), 145.50($750m), 146.00($476m). Upcoming Close Strikes : 145.00($1.52b Sept 24), 152.00($1.67b Sept 26) - BBG.
• CFTC data shows last week asset managers reduced their JPY longs slightly +71162( Last +87239), leveraged funds again used the dip to add their short position believing the support will continue to hold -58811(Last -49951).  

Fig 1 : USD/JPY Spot 2H Chart

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

The AUD/USD has had a range of 0.6581 - 0.6604 in the Asia- Pac session, it is currently trading around 0.6585, -0.20%. The AUD has drifted lower in Asia giving back most of its overnight gains. The USD retracement stalled yesterday as sellers reemerged even with some clearly hawkish rhetoric from Fed speakers overnight. The AUD/USD continues to do some work around 0.6600 and should still see dips supported for now with the first buy-zone back towards the 0.6500/0.6550 area.

• Bloomberg -  “Morgan Stanley Says Sell Dollar Versus Aussie and Loonie. The Federal Reserve’s perceived emphasis on the job market at the expense of inflation will see the US dollar’s decline widening, according to Morgan Stanley strategists who now recommend selling the greenback versus the Canadian and Australian dollars.”
• September PMIs Off Recent Highs, But Q3 Average Higher : Australian preliminary PMIs for September fell from their August levels. The manufacturing print came in at 51.6, from 53.0, while services were at 52.0 from 55.8 in August (see the chart below). This saw the composite PMI come in at 52.1 from 55.5.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6530(AUD415m), 0.6650(AUD908m), 0.6680(AUD486m). Upcoming Close Strikes : 0.6450(AUD529m Sept 24), 0.6600(AUD703m Sept 24), 0.6720(AUD791m Sept 24) - BBG
• CFTC Data last week shows Asset managers started to significantly reduce their shorts, -41095(Last -68333). The Leveraged community has pulled back their shorts to be almost flat, -1519(Last -5081).
• AUD/JPY - Asia-Pac range 97.25 - 97.56, Asia is trading around 97.35.The pair has stalled towards 98.50, dips back towards 96.50/97.00 should be expected to be supported now first up.

Fig 1: AUD/USD spot Daily Chart

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