FOREX: USD Largely Holding Recent Gains, Japan Fiscal Package May Exceed Last Yr
The USD index sits a touch off Tuesday session highs, last near 1212. Cross asset trends have focused on gold volatility, although this hasn't spilled over much to the majors, with moves at 0.20% or less at this stage (AUD and NZD are ticking up). US equity futures have been supported on dips, while US Tsy yields continued to bias lower, which could be capping US upside, although this most recent BBDXY index bounce has come with the real US 10yr yield falling back to 1.70% (not far off Sep lows). Policy initiatives from the new Japan government have been the other focus point, but again Japan wide asset moves are not significant, with further details awaited.
- Japan's Growth Strategy Minister Minoru Kiuchi stated that the focus now is compiling an economic stimulus package, albeit with on eye still on fiscal discipline (DJ) (and diverse funding sources). Various ministers are being consulted, with a focus on helping tariff impacted sectors, along with cost of living relief. Kiuchi stated that no timeline is set on when the economic package will compiled.
- Following Rtrs reported: "JAPAN'S NEW PM TAKAICHI IS PREPARING ECONOMIC STIMULUS EXPECTED TO EXCEED LAST YEAR'S 13.9 TRILLION YEN ($92.2 BILLION), SOURCES SAY", although details aren't finalised yet, with the package potentially out next month.
- USD/JPY has held under 152.00 today, but dips to 151.50 have been supported. Japan equities are modestly higher, while JGB yields are drifting slightly lower.
- AUD and NZD have ticked up, likely aided by the rise in US equity futures. Local news flow has been light. AUD/USD is back around 0.6500, while NZD/USD has edged up to 0.5750, with upside focus to rest at the 0.5760 region (also note the 20-day EMA is at 0.5770/75).
- Later UK September CPI data print and ECB President Lagarde and Board members Buch and de Guindos speak.
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FOREX: Asia FX Wrap - USD Continues To Retrace, BBDXY Probes Above 1200
The BBDXY has had a range of 1198.77 - 1200.20 in the Asia-Pac session; it is currently trading around 1200, +0.15%. The USD continues to grind out gains as the market is being forced to recalibrate, having gone into last week's FOMC a little over its skis in terms of positioning. How far can this market retrace, I suspect sellers would be all over a bounce back toward the 1200/1210 area initially. A break below 1180 has been put off for now, but it feels like it's just a question of time before we have another look down there.
- EUR/USD - Asian range 1.1726 - 1.1748, Asia is currently trading 1.1730. The pair rejected the move above 1.1900 and quickly retraced. The market will be looking for dips back towards 1.1700 to find support to build a base from which to move higher again.
- GBP/USD - Asian range 1.3458 - 1.3474, Asia is currently dealing around 1.3455. The pair rejected the break higher and has moved back into the middle of its recent range. No clear direction for the moment.
- USD/CNH - Asian range 7.1134 - 7.1194, the USD/CNY fix printed 7.1106, Asia is currently dealing around 7.1150. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
- Cross asset : SPX -0.10%, Gold $3691, US 10-Year 4.142%, BBDXY 1200, Crude Oil $63.08
- Data/Events : EZ Consumer Confidence
Fig 1: GBP/USD Spot 2H Chart
Source: MNI - Market News/Bloomberg Finance L.P
US TSY FLOWS: BLOCK BUY TUZ5
BUY 5000 of TUZ5 traded at 104-09 5/8, post-time 14:08:17 AEST (DV01 $200,661). The contract is currently trading at 104-09 5/8, +0-00 1/8+ from closing levels.
NZD: Asia Wrap-NZD/USD Trades Heavy Around 0.5850, CFTC Shows Shorts Being Built
The NZD/USD had a range of 0.5847 - 0.5868 in the Asia-Pac session, going into the London open trading around 0.5860, -0.05%. US stocks initially tried lower on the H-1B visa story but have failed to follow through in our session. The USD retracement continues to extend though time will tell how long the reprieve lasts. The NZD underperformance got a real nudge from the poor GDP data last week. While the USD continues to pullback the NZD/USD is a great vehicle to express that but when the USD sellers return the NZD underperformance will once again be best expressed in the crosses. The 0.5800 is important support, I suspect we will see buyers around this area initially. A sustained break through there would turn the focus back towards the 0.5500 lows.
- Bloomberg - “Kiwibank Now Sees RBNZ Cash Rate Ending Year at 2.25%. Now expect a 50 basis-point cut in October followed by a 25bp cut in November so that the cash rate ends the year at 2.25%. “It has become crystal clear that the Kiwi economy is not recovering” and “the Reserve Bank needs to do more.”
- MNI Brief: China Sept LPR Remains Unchanged. China’s LPR held steady on Monday, in line with expectations, with more easing expected later in the year as the economy suffers stronger headwinds, according to a statement on the website of the PBOC.”
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6020(NZD374m). Upcoming Close Strikes : 0.5900(NZD372m Sept24) - 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 - 1.1267, 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 CFTC Data
Source: MNI - Market News/Bloomberg Finance L.P
