FOREX: USD(BBDXY) - 1205 Caps Rebound While Risk Builds On Reversal

The NZD/USD had a range today of 0.5861-0.5878 in the Asia-Pac session; it is currently trading around 0.5873, -0.05%. The pair trades heavily for the moment back toward the 0.5900 area. The risk backdrop looks to be running out of momentum for the first time in a while as the Middle-East mess comes back to the fore and equities start responding to the moves we have seen in yields and Oil. For now though the price action continues to look constructive but its failure to extend is something worth paying attention to. On the day, support lies in the 0.5835-0.5865 area and a sustained move back above the 0.5925 would be problematic for a market that is still positioned short. While this top holds though I would still prefer to be skewed from the short side.

• Options : Closest significant option expiries for NY cut, based on DTCC data:  none. Upcoming Close Strikes : 0.5620(NZD811m Aug 20), 0.5710(NZD775m Aug 20), 0.5740(NZD1.28b Aug 20) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 35 Points

Fig 1: NZD/USD Spot Daily Chart

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

The USD/JPY range today has been 159.29-159.64 in the Asia-Pac session, it is currently trading around 159.40. The pair continues to be well supported on any dip and the pressure seems to be building for another test of 160. The coordinated intervention with the US has added more two-way risk to this trade and a market that was very short Yen continues to show a significant pullback in positioning, even though price action seems to be at odds with that. We are seeing some cracks for the first time though for risk, can this relieve some pressure on the pair ? The market seems to be telling the authorities that until you actually raise rates sufficiently I will continue to pressure you via Yen selling. I suspect we could see some sellers re-emerge initially as we move into this 159.00-161.00 area, though the current price action suggests it might take another wave of intervention to cap the move.  

• MNI - Japan June Machine Orders Above Forecasts But Choppy Trend Continues: Japan core machine orders for June were better than forecast. This continues the see saw pattern for machine orders which were up 15.6%y/y in April. The stronger June core machine orders may imply some upside risks to the Q2 outcome from a revisions standpoint, but we don't get the Q2 capex data until Sep 1. In any case to be confident of a better business spending/capex backdrop we likely need to see more consistent m/m rises in core machine orders.
• “The BOJ may bring forward its next rate hike to September or October for political rather than economic reasons, according to Bloomberg Economics, as the government seeks to curb yen weakness.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 158.00($710m), 164.00($737m). Upcoming Close Strikes : 152.50($1.3b Aug 21), 160.00($1.62b Aug 20), 164.00($1.2b Aug 20) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 79 Points

Fig 1 : USD/JPY Spot Daily Chart

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

The AUD/USD has had a range today of 0.7069-0.7089 in the Asia- Pac session, it is currently trading around 0.7072, -0.23%. The pair stalled again above the 0.7100 area overnight, unable to extend higher as risk pulled back. Equities finally reacting to the moves we have seen in Yields and Oil, pulling back overnight and the KOPSI down over 5% in our session. For now though the AUD continues to actually hold up pretty well considering these moves, can it continue to do so or does it play catch up ? On the day, the first support is now back toward 0.7030-0.7060 and I suspect this needs to hold to have another test of the 0.7100 area. I have been skewed toward fading this rally but this is being challenged for the moment. FX volatility continues to stay compressed as the average true range remains benign.      

• MNI - Hauser Says M. East, AI & Supply Constraints Are Main Upside Price Risks: Deputy Governor Hauser participated in a fireside chat in Brisbane and reiterated that if inflation doesn't moderate then rates will need to be increased again. The three main upside inflation risks stem from the impact on input costs and uncertainty from the persistent Middle East conflict, effect of AI investment on demand and prices (eg. chips) and Australia's weak supply/productivity growth. RBA thinks that pessimistic consumer confidence isn't feeding into spending due to households having material financial buffers.
• MNI - AU Steady Private Wage Pressures, High Inflation Risks Larger Rises: Q2 wages rose 0.8% q/q to be up 3.2% y/y, as expected and in line with Q1 but 0.1pp below the RBA’s projection. The declining share of increases above 4% is helping to contain the total. Q3 remains the focus with 1 July minimum and award wage increases and signs from SEEK advertised salaries and NAB labour costs that wage inflation may be picking up. However, Q3 WPI is not released until 18 November.
• The RBA expects wage inflation of 3.3% y/y until Q2 2027 before it moderates gradually over the rest of the forecast horizon, which contributes to inflation falling back within the band. The longer inflation remains above target, the higher the risk of increased wage demands.  
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.7100(AUD305m), 0.7125(AUD450m). Upcoming Close Strikes : 0.6900(AUD482m Aug 21), 0.7120(AUD402m Aug 24), 0.7200(AUD747m Aug 20) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 34 Points

Fig 1: AUD/USD spot Daily Chart

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