SGD: USD/SGD - Drifts Lower, Support Seen Toward 1.2950-1.3000

The overnight range was 150.50 - 152.04, Asia is currently trading around 151.90. The pair has extended its move higher and is now testing the pivotal 152.00 area, a break of which will turn the focus back to 155-160. The last CFTC data available showed Asset Managers remained notably long JPY, should these moves begin to gather momentum, they could be forced to first pare back their longs and then if these significant levels are broken begin to rebuild JPY shorts. Many crosses are breaking through some pivotal areas(CNH/JPY Above 21.00) as well and unless the government says something to contradict the markets thinking these could begin to gather momentum. Expect dips to now find support unless there is push back on the market's views of Takaichi’s policies.

• Bloomberg - “Yen Carry Trade Is Back on Radar After Takaichi Jolts Markets. Investors wagered that Sanae Takaichi's pro-stimulus stance would result in a slower timeline for the Bank of Japan's policy tightening. The yen's weakness may sustain the appeal of carry trades, with some strategists predicting the currency will weaken broadly, potentially dropping toward 180 per euro.”
• “EM Carry Trade Thrives on Liquidity, Not Fundamentals. Investors are leaning into the “carry without crisis” narrative — borrowing in low-cost currencies like the yen, parking in high-yielders, and riding the spread differential. This explains why EM debt funds are enjoying their longest streak of positive returns since 2019.” - BBG
• Options : Close significant option expiries for NY cut, based on DTCC data: 147.00($1.47b). Upcoming Close Strikes : 150.00($778m Oct 9), 150.15($1.08b Oct 9) - BBG.
• Data/Event : Labor Cash Earnings, BoP Current Account Balance, Eco Watchers Survey Current SA

Fig 1 : USD/JPY Spot Weekly Chart

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

• RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
• RES 2: 96.685 - 1.000 proj of the Sep 3 - 12 - 15 price swing 
• RES 1: 96.615 - High Sep 12  
• PRICE: 96.425 @ 16:25 BST Oct 07
• SUP 1: 96.280 - Low May 15 (cont.)  
• SUP 2: 95.900 - Low Jan 14 (cont.)
• SUP 3: 95.760 - Low 14 Nov ‘24

Aussie 3-yr futures have traded lower and the contract has cleared the Sep 3 low of 96.435. A break of this level negates the recent short-term bullish theme. This breach signals scope for an extension towards 96.280, the May 15 low on the continuation chart. The short-term resistance to watch is 96.615, the Sep 12 high. Clearance of this level is required to reinstate a bullish theme.  

New Zealand's fortnightly dairy price auction, via GDT saw a further correction lower overnight. The whole milk powder price fell to $3696, from $3790 prior. This was a further 2.3% fall. We are now back to levels from Q4 2024. The chart below shows this whole milk auction price outcome against the Citi terms of trade proxy for NZD. There is a modest wedge between the two series, with further softness in dairy prices potentially weighing on the terms of trade proxy as we progress towards the end of this year. 

• This correlation between NZ's ToT proxy and NZD/USD is reasonably firm, so fresh downside in the ToT would be an additional headwind for NZD, all else equal. 

Fig 1: NZ Whole Milk Auction price & Citi NZD ToT 

Source: Citi/Bloomberg Finance L.P./MNI