FOREX: AUD Crosses - Best Way To Express AUD Underperformance
A quiet open for stocks this morning, overnight trading was pretty muted with most of the market off. The AUD traded soft for most of the overnight session giving back all of its gains related to the European tariffs. The crosses remain the best way to express an AUD short.
- EUR/AUD - Overnight range 1.7476 - 1.7559, Asia is trading around 1.7575. The dovishness of the RBA has given the AUD a strong headwind in the crosses. A base looks to be in place now from which to build for a move higher, expect buyers on dips now back towards 1.74/75. A break back above 1.7650 could see the move extend.
- GBP/AUD - Overnight range 2.0804 - 2.0921, Asia is trading around 2.0940. A clear break of the 2.0800 resistance and a solid base at 2.0500 now from which to move higher. Expect demand on dips now, first target 2.1000 a break of which will see the move higher gain momentum.
- AUD/JPY - Overnight range 92.54 - 93.19, Asia is trading around 92.30. The pair could not hold back above 93.00 overnight. A sustained close back below 91.50/92.00 is needed to turn the focus back towards the lows again.
AUD/NZD - Overnight range 1.0803 - 1.0836, the cross is dealing in Asia around 1.0810. A sustained break above 1.0930 is needed to turn the focus higher, until then expect supply on bounces.
Fig 1: EUR/AUD spot Hourly Chart
Source: MNI - Market News/Bloomberg
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
