AUD: AUD/JPY - Bounces Back As Bessent Denies US To Aid USD/JPY Intervention

After falling sharply on Friday, crude was higher on Monday driven by already slow progress on a Ukraine peace deal but Russia then stating that it will now appraise its negotiating position after it claimed that President Putin’s Novgorod residence was attacked by Ukrainian drones, which President Zelenskyy has denied. Holiday-related illiquidity is also causing volatility. 

• The EIA reported delayed US inventory data for the week ending 19 December. It showed a stock build of 0.4mn barrels which followed two consecutive drawdowns. Distillate inventories rose 0.2mn and gasoline 2.86mn, 6th straight weekly increases. Refinery utilization fell 0.2pp to 94.6%, 2.1pp higher than the same time in 2024.
• WTI rose 1.9% to $57.83/bbl on Monday but off the intraday high at $58.30. It has started today lower at $57.74 likely pressured by the latest US crude & product inventory build.
• Brent was up 2.1% to $61.94/bbl following a peak of $62.19. The benchmark is still down 1.0% in December. The December average is on track to post its lowest level since Covid-impacted January 2021, as excess supply has been the main market driver.
• Geopolitics have provided some support and remain a watch point with the US announcing a strike on another Venezuelan narcotics vessel and threatening to attack Iran if it resumes building nuclear weapons, as well as higher uncertainty over Ukraine peace talks.
• China’s Ministry of Finance said Sunday that it would extend the breadth of government spending in 2026 to support economic growth, which would likely increase energy demand.
• Bloomberg is reporting that Venezuela began to shut oil wells on Sunday as the US blockade has driven an increase in crude and product inventories which have filled storage. While the country has the largest known deposits, it was only the 17th largest oil exporter in 2023, according to the IEA.

TYH6 is dealing at 112-23, unchanged from closing levels in today's Asia-Pac session.

• US tsy yields finished near lows, a third straight session. 2-year was 2.5bps richer at 3.45%, holding below the 3.50% level and the richest since October 22. The 10-year yield was 2bps lower at 4.11%, the lowest since December 4.
• US stocks finished weaker as Pres Trump headlines made the rounds. Perhaps, profit taking has set in after hefty gains for the year, and the bulls have run out of AI momentum for now.
• Speaking from Mar-A-Lago, Trump discussed phone call with Russia's Putin saying, "WE HAVE A FEW 'THORNY' ISSUES WITH PUTIN ... ISSUES TO RESOLVE" Bbg -- no specifics.
• However - bit of risk-off on: "TRUMP: NOW I HEAR IRAN IS BUILDING UP AGAIN .. WILL KNOCK IRAN OUT IF THEY ARE BUILDING UP AGAIN" Bbg.

Commodity currencies underperformed the G10 on Monday with metal prices lower and equities mixed. The risk-averse yen outperformed supported by the BoJ December meeting opinions (SOO) signaling plans to increase rates further as members feel that the negative real policy rate is adding to downward pressure on the currency. The USD index finished slightly higher but had been in a narrow range of 1199.8/1202.5 through the day. 

• USDJPY trended lower through the European/US session reaching a low of 155.92, below where it was following the SOO. It finished down 0.3% to 156.05 and is currently around this level. There are no data this week.
• Aussie was an underperformer along with NOK and kiwi. AUDUSD fell 0.3% to 0.6694 after trading above 0.6700 through the APAC session reaching a high of 0.6727. It has started Tuesday around 0.6691.
• NZDUSD was down 0.55% to 0.5804 yesterday breaking below 0.5800 briefly to make a low of 0.5790. Its underperformance drove AUDNZD 0.2% higher to 1.1533 off the intraday peak of 1.1549, a new December high. It is currently lower at 1.1526. The pair has trended upwards since April as global trade risks dissipated and monetary policy expectations between the two countries diverged.
• The euro was slightly lower and the pound marginally higher against the US dollar leaving EURGBP down 0.1% to 0.8713 but has started today up to 0.8716.
• The US 2-year yield was lower. Equities were mixed with the S&P down 0.4% but Euro stoxx up 0.1% and FTSE flat. Metals corrected with gold falling 4.4% and copper down 4.6%. Oil rose with Brent +1.7% to $61.70/bbl. Iron ore remained around $105.50-106.00/t.