INR: USD/INR Holding Sub 50-day EMA, 1mth Risk Reversal Plunging

The BBDXY has had a range of 1193.03 - 1195.49 in the Asia-Pac session; it is currently trading around 1193, -0.10%. The USD continues to grind slowly lower, pressing and probing its recent support. A sustained break below 1195 is needed to regain the momentum lower and retest the year's lows towards 1180 where demand should return initially. A break sub 1180 would be extremely bearish, should the USD start another leg lower it would have big implications for FX and potentially see a lot of the recent ranges in G10 broken. The USD is trying to break its recent support ahead of the FOMC with the market pricing in a dovish outcome, there are obvious risks to this buy the rumour strategy. I would prefer to have optionality around FOMC and trade the event than going in naked short with a low bar to disappoint.

• EUR/USD -  Asian range 1.1757 - 1.1787, Asia is currently trading 1.1775. The pair consolidated has drifted higher into the FOMC as the USD breaks down. EUR is still within its wider 1.1350-1.1850 range with a bias to the topside.
• GBP/USD - Asian range 1.3598 - 1.3625, Asia is currently dealing around 1.3615. The pair is probing the top-end of its recent 1.3350-1.3650 range, price action suggests it may be looking to break these highs and reassert its momentum higher. A sustained break above 1.3650 will initially target the year's highs just below 1.3800, though here it would open a move back to the 1.4200/1.4300 area.
• USD/CNH - Asian range 7.1119 - 7.1198, the USD/CNY fix printed 7.1134, Asia is currently dealing around 7.1130. 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 $3682, US 10-Year 4.034%, BBDXY 1193, Crude Oil $63.46
• Data/Events : Germany ZEW Survey Expectations, Italy CPI, EZ ZEW Survey Expectations/ Labour Costs/ Industrial Production 

Fig 1: BBDXY Spot Daily Chart

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

NZGBs closed 3-4bps richer across benchmarks. 

• The August monthly CPI series generally showed a slowdown in increases, with food inflation up 0.3% m/m after 0.7% stabilising the annual rate at 5%. The RBNZ forecast Q3 headline inflation at 3.0% y/y in August, the top of its band, with the risk it could temporarily be above. It remains focused on the medium-term outlook, though, as it says, it can do little to impact the near term. However, the stabilisation or moderation in August is likely to be welcomed.
• The monthly price data account for around 46.5% of the quarterly CPI.
• Swap rates closed 4-5bps lower.
• RBNZ dated OIS pricing closed softer across meetings. 22bps of easing is priced for October, with a cumulative 40bps by November 2025.
• Tomorrow, the local calendar will see Q3 current account data and Westpac Q3 consumer confidence.
• The focus of the week will be on Thursday’s Q2 GDP data release. Bloomberg consensus is in line with the RBNZ’s August forecast of -0.3% q/q, bringing the annual rate to flat after declining 0.7% y/y in Q2. 25bp rate cuts are expected at both the October 8 and 26 November meetings.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 4.50% May-30 bond and NZ$225mn of the 4.25% May-34 bond.

The NZD/USD had a range of 0.5956 - 0.5975 in the Asia-Pac session, going into the London open trading around 0.5960, -0.18%.  US stocks continue to push higher, the risk is the market is getting ahead of itself looking for a potential positive outcome from the FOMC, so the bar for disappointment is being lowered. The USD continues to look vulnerable, which continues to support the NZD. A close back above 0.6000 would negate any semblance of the downward pressure it was exhibiting, but for those that have a bearish view this remains a decent entry point to express that.

• August Price Rises Moderate: The August monthly CPI series generally showed a slowdown in increases with food inflation up 0.3% m/m after 0.7% stabilising the annual rate at 5%. The RBNZ forecast Q3 headline inflation at 3.0% y/y in August, the top of its band, with the risk it could temporarily be above. It remains focussed on the medium-term outlook though as it says it can do little to impact the near term. However, the stabilisation or moderation in August is likely to be welcomed
• Westpac Expects Inflation To Be Below 3% By End 2025. NZ food inflation stabilised at 5.0% y/y in August, its highest since November 2023, while increases for existing rents moderated 0.3pp to 2.1% y/y, the lowest since 2011. The stabilisation or moderation, especially travel-related prices, in August is likely to be welcomed by the RBNZ as it sees a risk that Q3 could print above 3%, the top of the band. Westpac believes that it will be below this level by year end.
• “NZ AUG. GOVT. BONDS HELD BY FOREIGNERS FALL TO 61.5%" - BBG
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5825(NZD1.01b Sept 17), 0.5900(NZD860m Sept 17), 0.5935(NZD537m Sept 18) - BBG
• AUD/NZD range for the session has been 1.1158 - 1.1191, currently trading 1.1175. The Cross is consolidating above 1.1100, dips back towards 1.1000/1.1050 should be supported now. A break above the multiple highs towards the 1.1200 area is needed to regain the momentum higher.

Fig 1: NZD/USD Spot Daily Chart

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