US TSYS: Yields Lower, 10-Yr Resetting Recent Ranges

The NZD/USD had a range of 0.5975 - 0.5990 in the Asia-Pac session, going into the London open trading around 0.5980, -0.10%. US stocks finally paused for a breath ahead of the FOMC, but the USD can’t catch a break and looks to be breaking lower even before the market hears from Powell. The USD continues to extend lower, which is supporting 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, the FOMC tomorrow morning could be the catalyst needed for a clearer direction.

• MNI AUS - NZ Q2 GDP Forecast At -0.3% q/q But Some Locals Expect A Deeper Drop. Q2 GDP prints on Thursday, 18 September and Bloomberg consensus is forecasting it to contract 0.3% q/q in line with the RBNZ’s projection in August. The goods-producing sector was particularly weak over the quarter. The central bank said that activity stalled in Q2 driven by weaker business and consumer sentiment following the US’ announcement of higher tariffs. Chief Economist Conway noted that the data in July signalled that the recovery looks to have continued in Q3.
• "NZ’s Willis Says Economic Growth Is Picking Up After 2q stutter, acknowledges GDP report is expected to show 2q contraction" - BBG
• MNI AUS - “Current Account Deficit Lowest In 4 years: There was a sharp narrowing in the Q2 YTD NZ current account deficit as a share of GDP with it printing at 3.7% after 4.2% and the peak in Q4 2022 of 9%. Q1 was revised sharply lower at $0.709bn (nsa) and 4.2% of GDP from $2.324bn and 5.7%. The deficit in Q2 widened marginally to $0.97bn (nsa) but seasonally adjusted it narrowed $0.7bn driven by a smaller primary income deficit.
• 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

Fig 1: NZD/USD Spot Daily Chart

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

Indonesia is widely expected to keep rates at 5% today with only 2 out of 38 analysts surveyed by Bloomberg forecasting a 25bp cut (see MNI BI Preview). Bank Indonesia (BI) holds monthly meetings and so has space to be cautious given its focus on FX stability and that it intervened to defend the rupiah in recent weeks following political instability and the replacement of respected Finance Minister Indrawati. However with signs of weakening growth and moderating inflation, it will keep its easing bias.

• Headline inflation moderated 0.1pp to 2.3% y/y in August with lower transportation inflation offsetting higher food driven by rice prices. Core moderated to 2.2% y/y from 2.3%, the lowest since October, reflecting softer domestic demand.
• Both measures are now below the mid-point of BI’s 1.5-3.5% target band but in August the central bank said that it is “confident” that inflation will remain within the corridor this year and next with inflation expectations anchored, spare capacity, effects from digitalisation and “managed imported inflation”. 

Indonesia CPI y/y%

Source: MNI - Market News/LSEG

• The August S&P Global PMI showed an increase in manufacturers’ cost inflation due to the stronger USD which was passed on to customers driving selling price inflation to its highest since July 2024.
• Economic data since the August meeting have been mixed. Consumer confidence fell to its lowest in almost three years. Weak household sentiment is signalling a slowdown in consumption in Q3.
• July merchandise exports were robust rising 9.9% y/y with shipments to key destinations China and the US robust but also to the rest of ASEAN and the EU. In contrast, imports fell 5.9% y/y, a tentative signal of weak domestic demand.
• The S&P Global manufacturing PMI returned to positive territory with both domestic and export orders growing.

Indonesia merchandise exports vs imports y/y% 3-mth ma

Source: MNI - Market News/LSEG

The USD/JPY range has been 146.21 - 146.61 in the Asia-Pac session, it is currently trading around 146.50, +0.03%. USD/JPY came under pressure overnight as the USD trades very heavy heading into the FOMC. The price is now just above the support of its recent 146-149 range, and we need a convincing break to see a clearer direction again. CFTC data shows leveraged funds paring back some of their short JPY position last week but remain core short, looking for this support to continue to hold. A move back below 145/146 is needed to potentially start seeing these positions being flushed out. Can the FOMC or the BOJ this week be that catalyst ?

• (Bloomberg) -- “RBC BlueBay Asset Management has taken a long yen position, betting that Japan’s political transition and a possible Bank of Japan rate hike in October could drive further strength in the currency. BlueBay’s chief investment officer Mark Dowding said the firm would also consider shifting to “go long duration” if Shinjiro Koizumi wins the LDP leadership race, and the BOJ follows through with a rate hike.”
• "Japan’s GPIF is making its first direct investment in domestic alternative assets." - BBG
• MNI Brief: Japan Aug Exports Post 4th Straight Drop: Japan’s exports fell for a fourth straight year-on-year decline in August, down 0.1% after July’s 2.6% drop, as shipments of automobiles and iron, and steel products were hit by U.S. tariffs. The data is unlikely to prompt the BOJ to alter its view that exports remain broadly flat as a trend.
• Solid Demand Metrics For 20Y Auction: The 20-year JGB auction delivered solid results across key metrics. The low price outperformed dealer forecasts, which were set at 97.80 according to a Bloomberg poll. Moreover, the cover ratio jumped to 3.9974x from 3.0853 in the previous outing and the auction tail shortened to 0.10 from to 0.13
• Options : Close significant option expiries for NY cut, based on DTCC data: 145.70($1.22b), 146.85($861m), 148.00($567m). Upcoming Close Strikes : 145.00($1.48b Sept 19), 146.40($797m Sept 19) - BBG.

Fig 1 : USD/JPY Spot Weekly Chart

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