Brandt's Biggest FX Bet Is Short EUR/JPY as Yen Strengthens
Peter Brandt's firm holds its largest futures and FX position in a short EUR/JPY trade as the yen gains on intervention and rate expectations.
RBNZ chief economist Paul Conway says the October OCR decision is “completely open”, though the bank still leans toward a hike.
Conway’s remarks keep alive the possibility of a hike at the RBNZ's late-October meeting, a factor that should help the New Zealand dollar hold up against currencies whose expected rate path is heading lower, especially the Australian dollar after Thursday's poor jobs numbers. The differing outlooks make AUD/NZD a straightforward way to express the contrast between a dovish RBA and an RBNZ that remains hawkish. With the central bank refusing to tie its hands, each new batch of New Zealand data is likely to move pricing between a hold and a hike in the run-up to the decision. A continuing tightening bias also leaves little room for New Zealand yields to fall much further near term.
The signal from the central bank is that an increase is on the way, even if the timing is not yet specified.
Summary:
The RBNZ's next policy announcement, due in late October, is “completely open”, according to chief economist Paul Conway, who again said the official cash rate stands a better chance of going up than down.
On the sidelines of the IMF and World Bank meetings in Bangkok, Conway explained that the bank wants to avoid choosing prematurely between holding the rate and increasing it by 25 basis points. He added that the next OCR move is still more likely to be up, but the point at which that happens has not been decided.
Conway pointed to recent moves in oil prices and the New Zealand dollar as factors that have increased inflation pressure over the short term. Even with that, he said, the RBNZ is still confident inflation will fall back within the 1% to 3% target band next year.
Those remarks make the October decision a close call. Calling the meeting “completely open” meant Conway did not lock the bank into a hike, while his repeated tightening bias makes clear that a reduction is not under consideration. That leaves the RBNZ free to react to fresh data, including inflation numbers, in the run-up to the announcement.
The RBNZ's position is an outlier compared with other shifts around the region. Thursday's softer Australian jobs numbers prompted traders across the Tasman to lower the odds of a November RBA hike to about 15%. In the US, a firmer inflation reading has led markets to price in a strong chance of a Federal Reserve rate increase in December.
For the late-October meeting, the main question is whether the RBNZ needs to act now because of short-term price pressures from energy and the New Zealand dollar, or whether its confidence that inflation will return to target next year gives it room to wait a little longer.
Share to
Disclaimer: this article comes from third-party media and is provided for reference only. It does not constitute investment advice. Crypto and other financial products carry significant price volatility risk, so please make your own decisions carefully.
Peter Brandt's firm holds its largest futures and FX position in a short EUR/JPY trade as the yen gains on intervention and rate expectations.
The PBOC is expected to announce its daily USD/CNY midpoint around 0115 GMT, with Reuters estimating it at 6.6758.
MUFG expects the ECB to hold next week and deliver two more hikes through Q1 2027. It sees EUR/USD at 1.12 by year-end.
Stock futures point to sharp losses, oil nears $100, and Treasury yields fall amid renewed Iran strike fears. Earnings beats fail to lift some shares.