AUD: China’s Deteriorating Covid Situation Weighing On Commodities & AUD
AUDUSD trended lower overnight to a low of 0.6585, lowest since November 11, but is now slightly higher around 0.6600. It was the worst performer in the G10 except for JPY. DXY finished up 0.9% on the day supported by hawkish Fed speak driving US yields higher and the Covid situation in China.
- Technicals are still pointing to bullish conditions for the AUD and that the current pullback is corrective. Initial support is at 0.6604/6578 the November 21/11 lows but then the 50-day EMA of 0.6556 is the level to watch. On the upside initial resistance is 0.6797.
- AUDJPY traded in the 93.20 – 94.00 range yesterday and is now around 93.80. AUDNZD also was in a tight range ahead of Wednesday’s RBNZ meeting and is now at 1.082. AUD is down against both EUR and GBP around 0.6450 and 0.5587 respectively.
- Equity markets were lower overnight with both the S&P 500 and Eurostoxx down 0.4% as risk sentiment remained soft. VIX finished lower at 22.4%.
- Oil prices plummeted on news that OPEC+ would increase quotas but then bounced back as it then denied the reports. Brent is trading around $87.30/bbl, just below its Friday close. Base metals were also weaker and copper prices fell by 1.4%, driven by increasing Covid restrictions in China and some easing of supply conditions. Iron ore was also lower at around $95/tonne.
- Tonight at 1800 AEDT RBA Governor Lowe speaks on “Price Stability, the Supply Side and Prosperity”. It can be listened to at this link. There is little data tonight but there are a number of Fed speakers.
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USDCAD TECHS: Finds Support At The 20-Day EMA
- RES 4: 1.4040 76.4% retracement of the 2020 - 2021 bear cycle
- RES 3: 1.4016 3.382 proj of the Aug 25 - Sep 7 - 13 price swing
- RES 2: 1.4000 Psychological round number
- RES 1: 1.3898/3977 High Oct 14 / 13 and the bull trigger
- PRICE: 1.3721 @ 16:29 BST Oct 21
- SUP 1: 1.3670 20-day EMA
- SUP 2: 1.3503 Low Oct 4 and a key support
- SUP 3: 1.3429 50-day EMA
- SUP 4: 1.3358 Low Sep 21
USDCAD traded briefly below the 20-day EMA Thursday. This average, at 13670, is an important S/T support. The uptrend remains intact and the latest pullback is considered corrective. The recovery from 1.3503, Oct 10 high, reinforces bullish conditions. MA studies still highlight an uptrend and 1.3838, Sep 30 high has been cleared. Should markets close below the 20-day EMA, a deeper correction toward 1.3503, Oct 4 low, would be on the cards.
US TSYS: Market Roundup: Dec 75Bp Hike Pricing Fades, Risk-On Cues
Tsys trade mixed after the close, yield curves broadly steeper as 2s through 10s finished broadly higher vs. continued weakness in long end 30Y bonds Friday.
Just minutes after yield hit new cycle highs (10YY 4.3354%) - yields reversed course (10YY 4.2188%) as short end surged following tweet from WSJ's Nick Timiaros:
- Some officials are more eager to calibrate their rate setting to reduce the risk of overtightening. But they won’t want to dramatically loosen financial conditions if and when they hike by 50 bps (instead of 75). This meeting could allow officials to get aligned on next steps."
- Some fast$/prop accts attempted to fade the move prior to a Large 2s30s steepener Block at 0935:14ET:(+11,470 TUZ2 102-62, through 102-01.75 post-time offer vs. -3,000 USZ2 118-19, through 118-22 post-time bid).
- Risk-on tail wind after San Francisco Federal Reserve President Mary Daly said Friday the FOMC needs to start considering a slowing the pace of interest rate hikes in order to avoid tightening monetary policy too much, adding the benchmark lending rate could reach 4.5% to 5% next year.
- “We don’t just keep going up in 75 basis point increments, we do a stepdown," she said. “That doesn’t mean step down as in pause and don’t raise, it means step down to increments that are easier to manage, 50, 25, where you’re still moving up but you’re doing it in a way that is not so aggressive.”
- After the bell, 2s10s curve was +12.828 at -25.775 vs. -38.595 inverted low.
US: Late Corporate Credit Update
Investment-grade corporate credit risk cooled Friday, back near October lows amid a cautious bounce in stocks as more hawkish (read: 75bp) year end rate hikes debated.
- Investment grade risk measured by Markit's CDXIG5 index is currently -4.398 at 94.703; CDXHY5 high yield index at 98.255 (+.857).
- Outperforming credit sectors (tighter or least wide): Technology and Industrials both +1.4 followed by Consumer Staples (+1.7).
- Lagging sectors (wider or least narrow): Subordinated Financials (+4.1), Materials (+3.6), Sr Financials (+3.5).
