AUDUSD TECHS: Testing Support

• RES 4: 0.5682 High Nov 12 ‘24  
• RES 3: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
• RES 2: 0.6528 High Nov 29 ‘24
• RES 1: 0.6515 High May 7 
• PRICE: 0.6399 @ 16:40 BST May 20
• SUP 1: 0.6360 50-day EMA   
• SUP 2: 0.6275 Low Apr 14    
• SUP 3: 0.6181 Low Apr 11
• SUP 4: 0.6116 Low Apr 10  

AUDUSD is in consolidation mode. The trend condition remains bullish and the May 13 rally signals the end of the recent corrective pullback. Attention is on key resistance at 0.6515, the May 7 high. Note that moving average studies are in a bull-mode position, highlighting an uptrend. A resumption of the trend would open 0.6550, a Fibonacci retracement. Key support to monitor is 0.6360, the 50-day EMA. 

Option desks reported better SOFR put trade on net Tuesday in addition to some sporadic call buys on decent volume, Treasury options saw decent vol structures earlier. Underlying futures mixed, curves steeper with short end outperforming. Projected rate cut pricing largely steady vs. morning levels (*) as follows: Jun'25 steady at -1.3bp, Jul'25 steady at -7.5bp, Sep'25 at -21.5bp (-21.8bp), Oct'25 steady at -35.5bp, Dec'25 at -52.9bp (-53bp).

• SOFR Options:
  • +5,000 SFRZ5 94.87/95.37 2x1 put spds 0.0 ref 96.195
  • +8,000 SFRM5 95.75/96.00 call spds, 0.75 vs. 96.675/0.16%
  • +10,000 SFRH6 95.75/96.25 3x1 put spds 0.5 vs. 96.39/0.14%
  • +50,000 SFRM5 97.25 calls, cab
  • -2,500 0QH6/SFRH7 95.00 put spds, 10.5
  • +8,000 SFRM5 95.68/95.81/95.93 call flys, 0.5 ref 95.6825
  • 8,000 SFRZ5 96.50 call vs. 2QZ5 96.75 calls, 5-5.25 flattener (+2QZ5)
  • +10,000 SFRU5 95.75/95.81 put spds, 3.75 vs. 95.90/0.10%
  • -5,000 0QU5 96.87/97.00/97.12 call trees, 7.0 vs. 96.00/0.19%
  • -2,500 3QM5 95.87/96.12 2x1 put spds, 1.5 ref 96.33
  • +4,000 SFRM5 95.68/95.75 put spds, 5.5 ref 95.6825
  • +5,000 SFRU5 95.87 vs. 0QU5 96.25 put spds, 1.25
  • 5,000 SFRN5 95.62 puts, 0.5
  • 4,000 SFRH6 94.75 puts, ref 96.42
  • Block, 5,000 SFRM5 95.62/95.75/95.87 put flys, ref 95.69
  • 3,600 SFRM5 95.68/95.75 put spds ref 95.6925 to -.69
• Treasury Options:
  • -7,800 TYN5 110 straddles 1-41 ref 110-03.5
  • -11,000 TYM5 110.25/111.5 put spds 1-05
  • +9,000 TYQ5 108/112.5 strangle, 59
  • Block, +17,000 TYQ5 113 call w/ 17,500 TYQ5 107.5 puts, 47 total vs. 110-05
  • 2,400 TYN5 114/114.5 call spds ref 110-14

• BMO thinks the April CPI data could push back BOC rate cuts: "The big relief from lower gasoline prices in April masked an unfriendly inflation picture beneath the surface. Some of that upswing in underlying prices appears related to the simmering trade war, with food and vehicle prices showing some real power. In other words, there are two conflicting special factors at play here, both of which should fade over time. This leaves the Bank of Canada in a spot, as their two main measures of core are now running at their fastest pace in a year—i.e., back before they began cutting rates. After a weak jobs report handed the Bank a good reason to cut, this back-up in core above 3% pretty much washes that away. Given a weak growth outlook for much of 2025, we continue to expect further rate reductions, but the Bank may need more time to gain comfort in the inflation outlook."
• Desjardins called the acceleration in the BoC's core metrics "material" but the BOC remains on track to cut 25bp in June: "BOC officials will clearly be concerned with the recent acceleration in core measures of inflation. That said, given that the removal of the federal carbon price will also likely impact inflation expectations, there’s scope for the change to further affect price dynamics in a positive way.... we expect that upcoming surveys will show a sharp reversal of the spike in inflation expectations seen earlier this year... With the economy clearly weakening in recent months, lower inflation expectations should keep central bankers on track to cut rates 25 basis points in June. We recently revised our terminal rate forecast to 2.00%, up from 1.75%, and today’s slightly hotter data reinforce that decision, but the data don’t remove the need for monetary stimulus in the near-term."
• National Bank still sees the BOC cutting another 75bp this year, with only limited risks that inflation will be sustained: "Given signs of economic deterioration and sticky inflation in the data, some may fear we are entering a period of stagflation that would make the central bank less eager to ease policy further. Despite these inflationary pressures, the broader economic picture suggests in our view limited risk of sustained inflation. For instance, few firms reported capacity constraints in Q1, implying that the recent rise in inflation is a temporary anomaly and there is minimal risk of persistent domestic inflation. Additionally, the economy is already showing numerous signs of strain including private corporations slashing jobs. With the economy already facing excess supply and as retaliatory tariff measures are relatively limited, this is not the moment for the Bank of Canada to fixate on inflation, a lagging indicator, but rather to focus on fostering conditions that sustain economic growth. We continue to anticipate a cut in the policy rate to 2.0% by the end of the year.