MACRO OUTLOOK: MNI US Macro Weekly: More Noise Than Signal From Key Data

Fed Gov Miran laid out a case for a smaller Fed footprint in the financial sector in a speech Wednesday called "Regulatory Dominance of the Federal Reserve’s Balance Sheet" While he supported the Fed's recent decision to end balance sheet runoff, and in fact would have supported ending it a month earlier than the Dec 1 conclusion, he is nonetheless eyeing a reduction in reserve balances from current proportions (eg as a % of GDP). 

• It's unclear whether Miran will be reappointed to stay on the Fed Board after the end of his term in January - and thus he might not be in much of a position to shape future balance sheet policy - but it's worth considering his overall view as it may signal the current presidential administration's preferences. We note for instance parallels between his ambition for a smaller balance sheet along with his view that rates should be much lower; ex-Fed Gov Warsh, a candidate to succeed Jerome Powell as Fed Chair, has eyed lower rates and a smaller balance sheet as well.
• He argues that only once the Fed reshapes the regulatory framework can it begin to make plans for the future size and composition of its balance sheet: "It has become apparent to me that trying to settle the ongoing debates on how monetary policy is best implemented before settling the regulatory framework is putting the cart before the horse."
• "As we right-size the regulations, my hope is that it will allow us to further reduce the size of the balance sheet, relaxing the grip of regulatory dominance....as we make more progress peeling back regulations, I expect the optimal level of reserves may drop below where it is now, at least relative to GDP or the size of the banking system. It is possible that in the future, it will be appropriate to resume shrinking the balance sheet; stopping runoff today does not necessarily mean stopping it forever."
• He also makes the point that smaller reserves would ultimately reduce the amount the Fed pays out to banks on their holdings, a subject of contention among some politicians (though the interest on reserves regime has been heartily defended by others on the FOMC). He says "That [shrinking the balance sheet] would also enable us to reduce our interest payments on reserves. If we go far enough with removing regulations, we may be able to limit perceptions that the Fed is picking winners and losers through regulations, asset purchases, and credit allocation decisions. But before further reductions in the balance sheet, we first have to get the regulations right and ensure that bank balance sheets are flexible enough for an environment with a smaller Federal Reserve footprint."

The AUD/USD had a range overnight of 0.6451-0.6497, Asia is trading around 0.6470. Fed members strongly differed on a December cut in the minutes and the BLS said it won’t publish an October jobs report. This has seen the market pull further back on hopes of a December cut and has seen the USD break higher and Crypto have another leg lower. The AUD/USD drifted lower in sympathy and is testing its recent support around the 0.6450 area. The AUD/USD continues to chop around within its wider 0.6350-0.6650 range, the first support is right here around 0.6440-0.6460 which has been pretty solid the last couple of months, then 0.6350 below that. It would need this move lower in risk to accelerate and become something more significant to challenge down there I would think. The market waits for the Nvidia results with bated breath as risk feels like it could rollover if the market does not get the stellar results its looking for,

• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6500(AUD736m), 0.6530 (AUD422m), 0.6550 (AUD739m). Upcoming Close Strikes : 0.6550(AUD2.28b Nov 21) - BBG
• The AUD/USD Average True Range for the last 10 Trading days: 51 Points
• Data/Event: RBA’s Sarah Hunter speaks at the Australia Industry Group in Sydney

Fig 1: AUD/USD spot Daily Chart

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

• RES 4: 0.6660 High Sep 18 
• RES 3: 0.6644 76.4% retracement of the Sep-Oct bear leg
• RES 2: 0.6618 High Oct 29 and a key near-term resistance  
• RES 1: 0.6524/6580 20-day EMA / High Nov 13 
• PRICE: 0.6452 @ 17:36 GMT Nov 19 
• SUP 1: 0.6452 Low Nov 19 
• SUP 2: 0.6440 Low Oct 14 and key support 
• SUP 3: 0.6415 Low Aug 21 / 22 and a bear trigger
• SUP 4: 0.6373 Low Jun 23   

Recent weakness in AUDUSD highlights a clear bear threat. This also reinforces a short-term bearish signal on Nov 13 -  a shooting star (inverted hammer) candle formation. Note too that moving average studies are in a bear-mode position, highlighting a dominant downtrend. Key short-term pivot resistance has been defined at 0.6580, the Nov 13 high. A continued sell-off would expose 0.6440, the Oct 14 low.