JPY: USD/JPY- Fix Selling & AUD/JPY See 156.50 Tested Again, Demand Still Around

The AUD/USD has had a range today of 0.7154-0.7171 in the Asia- Pac session, it is currently trading around 0.7165, +0.03%. The pair dropped quickly after stalling above 0.7200 thanks to a hawkish Warsh speech, some USD demand for corporate month-end could also have added some weight toward the latter stages of the Friday session. Was that speech enough to turn around the woes of the US Dollar ? It's a big ask. We have NFP’s this week and another weak print would have the market questioning if the Fed can actually raise rates. This morning risk is opening up on the backfoot in Asia thanks to renewed strikes by the US on Iran, with the normal promise of a reprisal to come. This is just adding to the headwinds for risk following on from Friday that has seen its recent bounce stall. On the day, the first support is back toward 0.7120-0.7150, through here the 0.7050-0.7085 area is next. I will be watching to see if the dips remain  supported and how the USD fares as the focus now turns to NFP. Expressing AUD outperformance in the crosses has been the better way to go and while 0.7200-0.7250 caps it that probably remains the case. 

• MNI - AU Highest Inflation Gauge Since End-2023 Increases Hike Risk. This data adds to the case for another rate hike as there are increasing signs that the upside risks the RBA fears are materialising. The next meeting is 29 September with August CPI not until 30 September, therefore other price data, such as the inflation gauge, are important. 
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.7050(AUD358m), 0.7120(AUD503m). Upcoming Close Strikes : 0.7100(AUD663m Sept 1), 0.7120(AUD623m Sept 2) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 36 Points

Fig 1: AUD CFTC Data

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

RBNZ-dated OIS pricing is modestly 1-3bps firmer across meetings today versus Friday’s close. 

• The OIS curve has fully priced a 25bp hike this week, with 71bps of cumulative tightening priced by February 2027.
• Despite the recent repricing, rates beyond December 2026 remain around 3-8bps softer than levels prevailing ahead of the late-July release of Q2 CPI.
• Headline inflation rose 1.5% q/q and 4.1% y/y in Q2, up from 0.9% and 3.1% respectively in Q1, and remained above the top of the RBNZ’s 1-3% target band for a fourth consecutive quarter. The annual rate also exceeded the RBNZ’s 3.9% July projection.
• However, underlying inflation pressures appear more contained. The RBNZ’s Q2 sectoral factor model inflation index was unchanged at 2.7% y/y, while sectoral factor non-tradable core inflation also held at 3.6% y/y. Sectoral factor tradable core inflation was 1.6% y/y.
• More broadly, a growing body of data points to less pressure for the RBNZ to continue hiking at every meeting, leaving open the possibility of a pause in October.

Figure 1: RBNZ-Dated OIS – Current Vs. Pre-Q2 CPI

Source: Bloomberg Finance LP / MNI

The EUR/USD range overnight was 1.1578-1.16658, Asia is currently trading around 1.1590. The pair dropped very quickly after Warsh came out pretty hawkish, putting in a top towards 1.1700 and a bearish looking shadow now on the Weekly chart. Is Warsh coming out hawkish enough to turn this around? I suspect he might have to follow through with a hike and the NFP this week will be a significant input toward making that decision. I have been skewed in favour of fading this rally in the EUR, with this pivotal weekly 1.1600 area back in play but the price action in the US Dollar had me questioning this playing out. If you are a bear there is now a clear point back above 1.1700 where you are wrong now. Having broken through its first support, the 1.1520-1.1570 support area comes back into play. I suspect that we might do some work until NFP though, perhaps with a slightly offered tone. Initial resistance on the day is now back toward 1.1630-1.1660.      

• MONDAY/TUESDAY - Eurozone Preliminary August HICP Reports. The Eurozone August flash inflation round already saw prints last week from France, Spain and Belgium, which, on balance, provided little directional risks to consensus for the headline figure, standing at 3.3%. German data will be following on Monday (headline HICP seen at 3.1%, morning state-level data will likely give some hints here), while the Netherlands (seen at 3.2%), Italy (3.4%), and the bloc-wide print will be finishing on Tuesday. Underlying core inflation, stripping out volatile energy and food prices, is seen unchanged from July at 2.5% Y/Y. This means that energy should prove the main upside driver to headline, while food inflation is seen to marginally extend its recent downtrend driven by base effects. Meanwhile, within the core categories, non-energy industrial goods are projected to continue gradually accelerating, with continued strength in IT / communications-related items, while feedthrough from higher energy prices remains in the pipeline for the most part in the August reading. In services, expectations are for a roughly unchanged reading in August. The print is not expected to sway the ECB from an almost fully priced hike at the September meeting.
• CFTC Data up to 25/08/26 shows the Leveraged community starting to cover a portion of their core shorts, -55 311(Last –76 035). Asset managers continued to add back to their core longs for the first time in awhile, +287 400(Last +266 460). 
• Options : Closest significant option expiries for NY cut, based on DTCC data: 1.1600(EU2.16b), 1.1625(EU1.38b), 1.1675(EU1.36b). Upcoming Close Strikes :  1.1600(EU1.45b Sept 1), 1.1650(EU1.49b Sept 1), 1.1700(EU1.7b Sept 2). - BBG
• The EUR/USD Average True Range for the last 10 Trading days: 41 Points

Fig 1 : EUR CFTC Data

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

Fig 2 : EUR/USD Spot Weekly Chart

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