USDCAD TECHS: Holding On To The Bulk Of Its Recent Gains

The AUD/USD had a range Friday night of 0.6633-0.6677, Asia is trading around 0.6645. The US stock market wobbled on Friday as AI concerns came back to the fore and US yields in the long end tick back up. This saw the USD’s decline stall but it has not bounced, yet. The AUD price action remains very constructive but the way risk starts the week will have important implications for its direction. While the AUD remains above 0.6500-0.6550 I suspect dips should continue to be supported. In the Asian session, I will be watching how risk opens the week and whether the 0.6600-0.6630 will continue to find demand. If this area does not hold it could signal a deeper pullback toward the 0.6550 area. 

• Bloomberg - China Vanke failed to obtain sufficient support for its plan to delay paying a 2 billion yuan ($283 million) note due Dec. 15.  {NSN T74QOOKGZAJ6 <GO>}
• Alexander Stahel on X believes this could have huge implications for Macro: “Let me be clear: This crisis is nothing the world has ever seen before. It makes the Japanese 90ies bust look like a children’s birthday. Sooner or later, the Chinese economy, and with demand for energy commodities and base metals, will fall into an “air-pocket”. Inevitable.”
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6555(AUD548m), 0.6650(AUD970m), 0.6750(AUD494m) . Upcoming Close Strikes : 0.6550(AUD1.07b Dec 18 ), 0.6675(AUD8989m Dec 18 ) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 39 Points

Fig 1: AUD/USD spot Daily Chart

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

• RES 3: 140.08 - High Jun 13  
• RES 2: 139.05 - High Aug 4 
• RES 1: 137.30 - High Sep 8 and key short-term resistance
• PRICE: 133.44 @ 15:44 GMT Dec 12
• SUP 1: 133.25 - Low Dec 10
• SUP 2: 132.78 - 2.0% Lower Bollinger Band
• SUP 3: 132.17 - 1.0% 10-dma envelope  

Prices traded to new pullback and cycle lows earlier this week, weighed by building expectations of a December BoJ rate hike and a breach of support in futures prices. This affirms the firm downtrend that’s dominated prices since mid-September, and prices will need to challenge resistance before signaling any broader reversal.

The FOMC's decision this week to immediately initiate reserve management purchases (RMPs) suggests some concern by policymakers over recent funding market issues and potential further volatility at year-end, while also having an eye on building reserve capacity ahead of the major tax date in April.

• The December FOMC statement noted "reserve balances have declined to ample levels" vs abundant previously, and RMPs will be conducted "to maintain an ample supply of reserves on an ongoing basis."
• As of the meeting, reserves stood at just under $3T ($2.97T), perhaps on the high side of most estimates of where the "ample" range had been. Gov Waller estimated in July that "ample" could be closer to $2.7T.
• The $40B / month pace of RMPs is front-loaded and will taper off, with the reserve rebuild set to average about $20-25B/month. (Powell said Wednesday: "We have to keep reserves, call it, constant as a -- as it relates to the banking system or to the whole economy. And that alone calls for us to increase about $20-25 billion per month...It's also happening in the context of a temporary few month front loading to get reserves high enough to get through the -- you know, the tax period in mid-April."
• The NY Fed's guidance: "The Desk anticipates that the pace of RMPs will remain elevated for a few months to offset expected large increases in non-reserve liabilities in April. After that, the pace of total purchases will likely be significantly reduced in line with expected seasonal patterns in Federal Reserve liabilities. Purchase amounts will be adjusted as appropriate based on the outlook for reserve supply and market conditions."