Westpac is positioning for another leg lower in the US dollar, recommending a sell on the Dollar Index (DXY) if it breaks below 99.40. The DXY measures the US dollar against a basket of six major currencies — the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc — and is widely used as a benchmark for broad dollar direction.

The bank identifies 99.40 as a critical support level that has held firm over the past two months. The proposed trade would target 98.00 on the downside, with a stop placed at 99.90. Westpac noted that a benign July CPI report combined with convincing progress toward reopening the Strait could serve as the catalyst for such a move, though neither materialized during the current week.

Importantly, this is not yet an active short position. Westpac is awaiting a confirmed technical break rather than attempting to front-run the move.

Separately, Westpac is maintaining its long GBP basket trade, which was initiated on July 10. The thesis centers on the idea that the UK's "governability risk premium" could compress — a discount that sterling has carried amid periods of political instability, including the rapid turnover of prime ministers and fiscal policy turbulence in recent years. The basket holds long sterling positions against the US dollar, euro, Swiss franc, and Swedish krona, with the largest weighting allocated against the euro. The trade targets a level of 105 from an entry at 100, with a stop at 98.

The framing of the sterling trade is notable — it is less predicated on a robust UK economic recovery and more focused on the removal of a political discount that had been embedded in the currency.

Westpac is also monitoring AUD/NZD closely around the 1.2000 level. Attempts to break lower in both July and August have failed, and the most recent upward move has been supported by the Reserve Bank of Australia's hawkish stance. Momentum currently points toward 1.2100–1.2200, and Westpac suggests this could present a tactical long opportunity.

However, the broader bias remains toward selling AUD/NZD on a convincing downside break. For that scenario to unfold, Westpac indicates that Australian-New Zealand yield spreads would likely need to extend the declining trend observed over the past six months. Yield spreads between the two countries' bonds are a closely watched driver of the AUD/NZD cross, as they influence relative capital flows between the two closely linked economies.

On the calendar front, New Zealand has limited immediate data releases ahead of the Reserve Bank of New Zealand's September 2 policy decision. Australia, meanwhile, is scheduled to release July employment data next week, followed by CPI the week after. These data points could shape expectations for both central banks' policy paths, which in turn influence the yield spreads Westpac identifies as key to the AUD/NZD outlook.

In summary, Westpac's three key trade ideas are:

• Sell DXY on a break below 99.40, targeting 98.00 with a stop at 99.90
• Stay long the GBP basket against USD, EUR, CHF, and SEK, targeting 105 from a 100 entry with a stop at 98
• AUD/NZD could squeeze toward 1.2100–1.2200, though the larger bias favors selling a convincing downside break

The DXY trade stands out as the most prominent idea. A break of 99.40 would push the dollar below a level that has repeatedly provided support over recent months, and if the fundamental backdrop cooperates, Westpac sees little standing in the way of a move toward 98.00.