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Heavy Midweek Issuance Over $31B

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Bonds and tech gains

US TSYS

Post-Data

LATAM FX

Price Signal Summary: USDBRL Bear Cycle Extends

STIR

Front Rates Unwind Overnight Strength

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  • Despite the general US dollar strength, AUDUSD is in firm positive territory to start the week, recovering 0.65%. Broad AUD gains are noted given the significant bounce against the euro and especially the Yen – AUDJPY +1.33%.
  • Naturally, the firmer global equities/oil prices have created more benign conditions for risk-tied FX, however, the outperformance is notable and was likely bolstered by the PBOC easing in the form of a RRR cut.
  • Combined with fundamental reasoning, technical supports have also aligned, adding weight to the potential for a greater short-term recovery from some key inflection points. AUDUSD low overnight at 0.6995 came within 4 pips of the November 2020 lows.
  • Additionally, following the sharp Aussie depreciation throughout November, both AUDJPY and EURAUD have bounced significantly from their September lows and highs respectively.
  • Interestingly, in terms of positioning markets slashed exposure to commodity-tied FX in the week ending Nov 30, with AUD, CAD and NZD all seeing their net positions deteriorate, according to the latest CFTC data.
  • Recent oversold conditions in WTI has defined $62.43 as a key short-term support. The rebound since highlights potential for a near-term recovery allowing an unwind which may also frustrate lingering AUD shorts.
  • Lastly it is worth highlighting the upcoming event risk of the RBA meeting/decision overnight. Largely expected to be a relatively bland affair, the bank has already signalled that February will be the next “live” meeting when it comes to reconsidering matters surrounding its bond purchasing scheme.
  • FX options markets agree, with implied pricing suggesting roughly a 42 pip range for AUDUSD before tomorrow’s NY cut. Given this information, the significant support levels may struggle to be tested, potentially creating the path of least resistance as higher in the immediate sessions. Initial resistance is at Friday’s 0.7099 high. More meaningful resistance is found between 0.7173/7198 highs Dec 1/Nov 26

MNI/Bloomberg