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AUD Slips Off Top Spot, With Expiries In Focus

FOREX
  • Following a more solid session Wednesday, AUD is fading early Thursday, prompting AUD/USD to narrow in on $0.6800. Option interest has taken focus here, with sizeable expiries rolling off at that handle at both today's and tomorrow's NY cut. Resultingly, AUD is one of the poorest performers in G10 alongside NZD and GBP.
  • EUR is faring better, with EUR/GBP holding the bulk of the recent strength and holding just below the recent high of 0.8877. Progress north of here would open multi-month highs and levels not seen since the UK Trussonomics budget-induced volatility at the end of September.
  • With onshore trade closed, worth noting the extension of CNY strength since the turn of the year, with USD/CNY touching new multi-month lows Thursday. USD/CNY closed below 6.87 for the first time since August (USD/CNY then rallied north of 7.00 after a particularly hawkish Fed meeting) and is now within realistic range of the 6.8294 200-dma for the first time since April last year. Options markets have taken note, with broadening demand for CNY upside protection (evident in the downtick for USD/CNH 3m risk reversals, which now show the smallest premium for USD/CNH calls over puts for 4 months). Similarly, the 3M USD/CNH smile skew has moderated considerably away from OTM calls.
  • ADP Employment Change data for December takes focus going forward, with markets still looking for clues ahead of the Friday nonfarm payrolls release. Markets expect ADP to show job gains of 150k over the month - a modest recovery from November. A number of Fed speakers are on the slate, with Harker (2023 voter), Bostic (non-voter) and Bullard (non-voter) all to appear.
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