USD: BBDXY - USD Drifts Higher Within Recent Whippy Range

The BBDXY range overnight was 1185.89-1190.08, Asia is currently trading around 1189. The USD recovered and closed the early Monday morning gap lower, the fact London came in and bought the USD as risk turned down was important. The market remains bearish the USD so it will be very quick to put these trades back on. Besides the tariff mess the risk of an extended war or a potential limited strike with Iran is something the market is also juggling with. On the day, it looks like 1184-1194 should cover it as the market struggles for some clear direction.

• MNI POLICY: Long Road To Scarcer Reserves For Warsh. The size of the Federal Reserve's balance sheet cannot be reduced much further under the current regulatory framework without risking its control over interest rates, making it difficult for Fed chair nominee Kevin Warsh to persuade the rest of the FOMC to restart QT or induce banks to demand fewer reserves ahead of regulatory reform.
• MNI BRIEF: G7 To Meet Today On US Tariff Developments. G7 trade ministers as well as EU diplomats will meet later on Monday to discuss the implications of Friday's U.S. Supreme Court ruling for their trade relations with the U.S. as well as President Donald Trump's threat of new across-the-board 15% tariffs, the European Commission said.
• The BBDXY Average True Range for the last 10 Trading days: 4.40 Points

Fig 1: BBDXY Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

The latest ACGB Mar-36 auction saw solid demand, with the weighted average yield coming in 0.46bps through prevailing mid-yields, according to Yieldbroker, continuing the trend of firm pricing at recent ACGB auctions.

• However, the cover ratio declined dramatically to 2.7125x from 3.5167x.
• As highlighted in our preview, bidding at today’s auction faced an outright yield that was ~30bps above the previous auction level but about 15bps below the cycle peak, set this month.
• Potentially weighing on demand was the fact that the 3/10 yield curve was flatter than the previous auction level and sat 70bps flatter than its recent high.
• There has been a slight cheapening in XM and the cash line in post-auction trading.

The overnight range was 1.1826-1.1853, the Cross is dealing in Asia around 1.1850. The Cross continues to trade with an underlying bid tone thanks to the divergence in the relevant Central Banks outlook. The price action has regained its upward momentum and is looking to build above 1.1800. The pair is challenging some pivotal resistance between 1.1850-1.2100, expect it to do some work around here but a sustained break above 1.2100 would start to get the bulls very excited about a larger extension higher.

• “The carry appeal on AUD/NZD is already considerable at about 40bps/quarter, and with that margin set to grow, so will the allure of the cross. The broad Australian dollar also faces support from higher gold prices, which boost the nation’s export earnings, not to mention a yuan that is in the ascendant.” - BBG
• The AUD/NZD Average True Range(ATR) for the last 10 Trading days: 51 Points

Fig 1: AUD/NZD spot Monthly Chart

Source: MNI - Market News/Bloomberg Finance L.P