FOREX: USD - Treading Water Around The 1190 Area In BBDXY

ACGBs (YM +4.0 & XM +2.5) are modestly stronger after a relatively subdued data-light session. 

• The focus of this week will be Wednesday’s November CPI, which is the new complete monthly series. The new trimmed mean CPI appears less volatile than the incomplete series but printed 0.7pp higher at 2.8% y/y in June 2025, which was the recent trough. Q2 was at 2.7% y/y overall.
• Bloomberg consensus is forecasting trimmed mean to be stable at 3.3% in November, which would be at or above the top of the RBA’s 2-3% band for the fifth consecutive month. Headline is expected to moderate 0.2pp to 3.6% but this series continues to be distorted by previous government electricity rebates.
• Cash US tsys are slightly richer in today's Asia-Pac session after Friday's modest bear-steepener.
• Cash ACGBs are 2-4bps richer, with a steeper curve and the AU-US 10-year yield differential at +64bps.
• The bills strip is stronger, with pricing +2 to +4 across contracts.
• RBA-dated OIS pricing shows tightening across all meetings, with the probability of a 25bp hike rising from 35% for February to 98% by June and 171% by December 2026.
• Tomorrow, the local calendar will see S&P Global PMIs: Composite & Services.

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Venezuela is not a major player in the oil market despite having the largest known reserves, as years of sanctions and dictatorship have resulted in its crude production trending lower. The industry has been neglected and significant private investment will be needed to increase output as well as the lifting of sanctions. Low oil prices could discourage the needed capex. President Trump has said that the US needs full access to Venezuelan oil to rebuild the country. 

• In the 1990s, Venezuela produced over 3mbd and OPEC reported that recently it was 1mbd which is above its 2020 trough. According to the IEA it was the 17th largest oil exporter globally and second in South America in 2023 as sanctions and a related-lack of investment in the sector drove output down 73% since 2000.
• Venezuela sells at a discount to benchmarks and most of its oil exports go to China.
• Even if it can return to producing 3mbd, Venezuela would still only be the 10th largest oil exporter and 15th largest producer, assuming other countries are unchanged. 

Oil prices fell around a percent on opening following the US’ removal of Venezuelan President Maduro, which in theory should allow for an easing of sanctions on its energy exports. Prices soon rebounded driven by significant uncertainty over Venezuela’s oil production capability, the situation in the country and stronger risk appetite in markets generally. At this stage markets don’t seem concerned that the action has set a destabilising precedent. 

• WTI fell to $56.56/bbl on today’s open but soon began trending higher reaching $57.73. It is currently around $57.10 to be 0.4% down on the day. Brent declined to $60.00 before rising to $61.24 and is currently -0.2% at $60.61.
• With a record surplus widely projected for 2026, any extra Venezuelan supplies on global markets could add to current downward pressure on oil prices. OPEC’s decision on Sunday to stick with its plan of unchanged Q1 quotas should provide a short-term floor though.
• Venezuela’s oil producing region appears to have seen minimal impact from the weekend’s events. The US blockade had already caused a pause in production, which was not a major concern, as storage facilities filled.
• The industry needs significant investment after an extended period of neglect which will be a long process and so there is unlikely to be an increase in Venezuelan oil exacerbating the 2026 market surplus.
• Morgan Stanley expects global oil supply to peak in mid-2026 and so has cut its Brent forecasts for Q1, Q2 and Q3 with the trough at $55 in Q2, according to Bloomberg.
• Later US December manufacturing ISM and UK November lending data are released.