Turnaround Tuesday as stocks see green, oil off

* USD holds steady near seven-week highs, eyes Fed easing cycle outlook

* Israel considers striking energy facilities in Iran, oil sells off after surging

* Golds falls for fifth session as markets reprice Fed rate cut policy

* Stocks rebound from Monday’s decline, now positive on the week

FX: USD continued consolidating its recent rally with another narrow range day, settling near recent highs. The major retracement (38.2%) level of the May to September move sits at 102.58. US Treasury yields have stopped moving higher for the time being. The 10-year sits just above the key psychological 4%. All eyes are on the inflation data.

EUR also carried on trying to steady itself and base out at support at 1.0974. Next weeks nailed on ECB rate cut didn’t get much push back from any central bank officials.

GBP traded marginally higher for the first day in six sessions. There was little to move sterling except the wider more positive risk mood.

USD/JPY moved modestly higher in a small range. The currency was not impacted by more comments from officials who said the government has faith in the BoJ’s decision on when to raise interest rates.

AUD sunk for a fourth day and below the halfway point of the move up from the September low at 0.6781. The RBA sounded slightly dovish in its latest minutes, which represents a clear step down from its previous more hawkish stance. It’s a 50:50 bet in money markets more or less on a first rate cut in December. The fading China rally also didn’t help the aussie. USD/CAD moved north to trade around the 100-day SMA at 1.3651. Friday’s September jobs and Q3 BoC Business Outlook survey are relevant for markets and policy outlook.

US Stocks traded higher, reversing all of Monday’s losses, with tech leading the gains. The VIX continued to trade above 20. The S&P 500 closed 0.97% higher to settle at 5,751. The tech-dominated Nasdaq 100 gained 1.65% to finish at 20,130. The Dow settled up 0.30% at 42,080. Energy and materials posted declines with tech rising 1.7%. Palantir advanced 5.4% while megacap heavyweight was 3.75 higher.  

Asian stocks: Futures are mixed. Asian stocks diverged with the negative Wall Street handover, higher oil prices and China’s NDRC press conference. The ASX 200 was helped by improved business surveys which offset losses in commodity sectors. The Nikkei 225 pulled back on the stronger yen.  The Hang Seng crashed on profit taking and shifting into the mainland, while no newer stimulus measures disappointed. The index plunged 9.4%, its biggest drop since 2008. The Shanghai Comp returned from its holiday with initial double-digit gains, before retracing around half of these. There was an absence of specific details on the size of Beijing’s recent stimulus with little long-term plans.

Gold sold off, dropping over 0.7% in one of its worst days since the start of August volatility. Rate cuts have obviously faded since Friday’s bumper NFP report. There are now less than six 25bps rate cuts priced in until the end of 2025, from eight before the data release.

Day Ahead – RBNZ to cut by 50bps

The RBNZ is unanimously expected to continue cutting rates at its meeting. A 50bps cut is expected, taking the OCR to 4.75% from the current 5.25%. The bank delivered a 25bps cut at the last meeting in August amid mixed views among analysts regarding a cut or a hold. The central bank’s rhetoric was less hawkish at that meeting as, the balance of risks had progressively shifted since the May monetary policy statement. Added to that, a broad range of high-frequency indicators pointed to a material weakening in domestic economic activity in recent months.

Going forward, inflation is now well-positioned to edge down within the 1-3% target band in coming prints. But, more importantly, the growth backdrop remains sluggish. With markets convinced that the bank will cut interest rates by 50bps, and by another 50 in November, it means that the risks for the kiwi could be tilted to the upside. If officials do signal more aggressive easing, this will confirm market expectations. That means any less dovish chatter could see the kiwi not depreciate and steady. If anything holds back the RBNZ, then it could be to wait to see Q3 CPI figures that arrive the following week, although there is a lot of ground to cover until the next decision toward the end of November.

Chart of the Day – NZD hit by China disappointment and risk mood

NZD/USD has tumbled since hitting major long-term resistance at 0.6369. That resistance was last December’s top. Prices have moved back to the 50% retracement point of the Summer rally at 0.6116. The 100-day and 200-day SMAs also reside aorund here. A more hawkish RBNZ could see the kiwi bounce back to 0.6176. the next major Fib level below is at 0.6051.

AUTHOR

Jamie Dutta >

Jamie Dutta is a Market Analyst for Vantage. He comes with extensive experience as a full-time trader and financial market commentator, having worked as a trader in top tier investment banks and trading houses.