FOREX: USD - BBDXY Tries To Bounce As Risk Turns Lower

ACGBs (YM +4.0 & XM +3.5) are richer and at session highs as risk turns down, led by Bitcoin.

• Cash US tsys are 2-3bps richer, with a steepening bias, in today's Asia-Pac session.
• Cash ACGBs are 4bps richer with the AU-US 10-year yield differential at +32bps.
• Today’s Jun-54 bond auction saw the weighted average yield print 0.18bps through prevailing mids. However, demand weakened dramatically, as reflected by a cover ratio of 2.8500x, down from 4.0533x from the previous auction.
• The AOFM plans to sell A$1000mn of the 2.75% 21 June 2035 bond tomorrow and A$700mn of the 1.25% 21 May 2032 bond on Friday.
• The November meeting minutes reiterated that the RBA's central scenario is "in balance" with risks to both the downside and upside. With core inflation above target and ongoing signs of a recovery in demand, policy is likely to be on hold in December and into early 2026, depending on the data.
• RBA-dated OIS pricing is softer today, showing a 25bp rate cut in December at a 5% probability, with a cumulative 15bps of easing priced by mid-2026.
• The bills strip has bull-flattened, with pricing +3 to +5.
• Tomorrow, the local calendar will see the Wage Price Index and the Westpac Leading Index. 

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Oil has unwound Monday’s gains during today’s APAC session on weaker risk appetite. WTI is down 0.8% to $59.50/bbl, close to the intraday low, and has traded below $60 over the day. Brent is 0.7% lower at $63.74, the day’s trough. While crude has trended lower over November, geopolitical risks have pushed back against market surplus concerns keeping it in a narrow range. 

• Conflict is impacting fuel output in Russia and Sudan, while Iran’s redirection of a tanker in the Gulf of Oman into its own waters increases the risk to the significant shipments travelling through the area.
• The grace period before the introduction of sanctions on Russia’s Rosneft and Lukoil ends in a few days and it remains unclear how they will impact the oil majors’ exports and overseas assets driving the discount on Russia’s Urals benchmark to its highest since June 2023, according to Bloomberg. Meanwhile, Ukraine continues to strike ports and refineries.
• With the oversupply situation firmly in focus, inventory data will continue to be important. US industry-based stocks are released later on Tuesday with the official EIA data on Wednesday.
• Both OPEC and non-OPEC have increased output this year and Bank of Montreal is reporting that Canadian oil sands production reached a record in June which is set to rise to 6mbd by 2030.
• China’s product exports were strong in October with gasoline up 11.8% y/y and diesel +55.7% y/y. However YTD they were down 10.3% y/y and 22.7% y/y.
• Later the Fed’s Barr & Barkin, BoE’s Pill & Dhingra, and ECB’s Buch, Elderson, Machado & Tuominen speak. Delayed US IP and final August orders are released as well as ADP weekly employment estimates, November NY Fed services and NAHB housing.

The BBDXY has had a range today of 1219.71 - 1220.63 in the Asia-Pac session; it is currently trading around 1220, +0.05%. The USD has drifted sideways in our session even with risk having another leg lower. The USD has bounced nicely off the 1210-1215 support area where it found some solid demand first up. Risk started the week on the backfoot yesterday again and the USD was the beneficiary. I  continue to watch for signs of a base forming from which to move higher again if risk stays under pressure. On the day look for dips toward 1217-18 to now be supported first up, a break of the 1221-1222 area remains the pivot on the topside, above there and it could look to  rebuild momentum for a test of the 1230-35 area.

• EUR/USD -  Asian range 1.1585 - 1.1597, Asia is currently trading 1.1595. The pair stalled and moved lower after finding some decent resistance toward the 1.1650-1.1700 area. This has been the pivot within the larger 1.1400-1.1900 range over the past few months. On the day look for the 1.1615-30 area to cap looking for a move lower.
• GBP/USD - Asian range 1.3145 - 1.3160, Asia is currently dealing around 1.3150. I continue to favor fading rallies, as GBP looks to have put in a medium term top. A sustained move back below 1.3080-1.3100 support would see the momentum lower reinstated and focus turn back toward the 1.3000 area. Suspect rallies back toward the 1.3250-1.3300 will be sold into if we see a bounce.
• Cross asset : SPX -0.70%, Gold $4010, US 10-Year 4.11%, BBDXY 1220, Crude Oil $59.46
• Data/Events : Spain Home sales

Fig 1: EUR/USD Spot Daily Chart

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