Fed Chair Kevin Warsh said progress towards the Fed’s 2.0% inflation target remains modest and reiterated price stability as the central bank’s primary mandate. Markets repriced the chances of a 25 bps September hike to above 50%, pushing USD/JPY through 159.50 towards 160.00, although the move stalled below the 50-day EMA with FX intervention risk in view. Attention turns to Friday’s US Nonfarm Payrolls, with consensus forecasting 58k jobs after a 23k fall in July, while unemployment is seen steady at 4.1% and wage growth easing to 3.0% y/y from 3.2%; Warsh’s emphasis on data dependency over forward guidance may also thin liquidity into the release. Separately, the US attacked Iran’s Larak Island and Iran retaliated against US bases in Jordan and the UAE, adding a geopolitical layer to near-term price action.
The Reserve Bank of New Zealand meets on Wednesday at 02:00 GMT, with markets fully pricing a second straight 25 bps hike to 2.75% and futures implying one more move by year-end. NZD/USD is trading around its 20-day SMA near 0.5900, with resistance at 0.5990 and potential demand near 0.5890, as joblessness has risen to 5.6% and inflation expectations sit slightly above 2%. Gold dropped to 4,396 as the US 10-year yield climbed above 4.70%, and technicians are watching 4,300, with a break risking a move towards 4,000.
Currency Markets and Central Bank Decisions
We suggest derivative traders prepare for heightened volatility in the currency markets as USD/JPY hovers near the critical 160.00 level. History shows that Japanese authorities spent a record 9.8 trillion yen (around $62 billion) in mid-2024 to defend this exact threshold, meaning the threat of sudden FX intervention is incredibly high. We believe traders should consider using barrier options or tight stop-losses on long JPY positions to protect against a sudden, government-driven drop.
The upcoming U.S. Nonfarm Payrolls report this Friday will be the next major market mover, especially with expectations set at a modest rebound of 58k jobs. Given that the 10-year Treasury yield recently surged past 4.70%, nearing the multi-decade highs of 5.0% seen in late 2023, any disappointment in the jobs data could quickly spark a sharp reversal in yields. We recommend utilizing short-term USD put options to capitalize on potential downside if the unemployment rate climbs above the projected 4.1%.
In the antipodean market, we advise watching Wednesday’s RBNZ decision closely as the market prices in a 25bps hike to 2.75%. This is a stark contrast to the aggressive 2022-2023 cycle when New Zealand rates peaked at 5.5%, showing that policymakers are now much more cautious about domestic growth. If the RBNZ strikes a gradual tone due to the rising 5.6% unemployment rate, we expect NZD/USD to slide below 0.5900, making short futures positions highly attractive.
Gold and Geopolitical Developments
Gold’s climb to 4,396 marks an incredible multi-year rally, but the metal is currently trading more like a high-beta risk asset than a safe haven. With the escalating military conflict between the US and Iran in the Middle East, we suggest hedging against a deeper technical pullback by buying put options targetting the 4,300 support level. If real yields remain elevated and Friday’s jobs report does not disappoint, we could see gold quickly tumble toward the 4,000 mark.
