ENERGY: CFTC to Publish Backlog of COTs

The AUD/USD had a range Friday night of 0.6468-0.6499, Asia is trading around 0.6495. Risk initially traded very weak on Friday night but roared back into the close and looks to be opening up supported by talk of a deal potentially coming together in Washington regarding the shutdown. The AUD/USD has found support and consolidated just above the 0.6450 area. A lot rides on if and when a deal is done in Washington but I suspect we get a knee-jerk higher in risk on the initial announcement that the shutdown has ended. The AUD will be one the main beneficiaries should this materialise with the RBA signaling it could be done with easing for now. All eyes will be on Washington to start the week.

• Bloomberg is reporting, “Senate Republican leader John Thune said a deal is “coming together” as he planned a Sunday vote to end the US government shutdown.”
• Bloomberg: “ You’ve got the RBA essentially signaling that it’s done easing, at least for now,” said Elias Haddad, a senior strategist at Brown Brothers Harriman in London. “The combination of relative monetary policy and resilient global economic activity can lead the Australian dollar to end the year closer to 0.67.”
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6560(AUD447m), 0.6615(AUD 464m), 0.6630(AUD462m). Upcoming Close Strikes : 0.6500(AUD1.22b Nov 12), 0.6530(AUD882m Nov 12)- BBG
• Data/Event: Westpac Consumer Conf, NAB Business Confidence

Fig 1: AUD/USD spot Daily Chart

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

Indeed NY's Williams has already begun pointing to potential for balance sheet re-expansion to begin again, with "reserve management"  purchases intended to keep Fed liabilities rising in line with market demand:

• "Looking forward, the next step in our balance sheet strategy will be to assess when the level of reserves has reached ample. It will then be time to begin the process of gradual purchases of assets that will maintain an ample level of reserves as the Fed’s other liabilities grow and underlying demand for reserves increases over time. Such reserve management purchases will represent the natural next stage of the implementation of the FOMC’s ample reserves strategy and in no way represent a change in the underlying stance of monetary policy."
• The prevailing consensus is that such reserve management purchases will begin by the end of Q1 2026 if not earlier, with t-bills bought and in amounts of up to $20B a month.
• Meanwhile in the final countdown to the end of QT on December 1, net SOMA runoff was around $4B in the last week, with a pace of around $20B overall over the last month.
• Takeup of the Fed's lending facilities pulled back in the week to Wednesday Nov 5, halving to just over $11B as month-end pressures abated. This was due almost entirely to a $10.2B drop in dealer repo operation takeup, the spike in which last week marked the highest since 2020.

The Fed's latest H.4.1 release on Nov 5 showed reserves picked up from the prior week's post-2020 lows to $2.85T, up $24B in the latest week but still down $182B over the last month. 

• This of course has been the mirror image of movements in the Treasury General Account which briefly touched $1T though settled Wednesday at $943B (a fall of $41B on the week, but a rise of $149B in a month).
• Treasury indicated this week that it maintained its $850B quarter-end cash target, with the recent buildup due in part to the federal government shutdown slowing outflows but also a typical cautionary cash rase ahead of large seasonal expenditures.
• The Fed's reverse repo facilities remained in relatively negligible territory albeit with a slight pickup at month-end October.
• Overall the Fed has recognized that it may be getting close to the transition point between once-"abundant" and now merely "ample" reserves, hence October's decision to end net asset runoff as of Dec 1.
• NY Fed President Williams said Friday morning “Based on recent sustained repo market pressures and other growing signs of reserves moving from abundant to ample, I expect that it will not be long before we reach ample reserves."