CNH: USD/CNY Fix Ticks Back Down, Helping Cap USD/CNH

*Updated source for the chart 

Earlier remarks from US President Trump via Truth Social suggested there was a willingness to negotiate with the Democrats around healthcare, as the US government shutdown continues. Trump did lay blame for the shutdown with the Democrats and also stated they should re-open the government immediately. Comments from Democrat leaders for both the House and the Senate stated that talks have not yet begun but that are open to negotiations with the US President. Headlines crossed a little while ago from US Republican Johnson (who is the House Speaker) that an end to shutdown this week was unlikely. Still, Trump stated to Newsmax that progress was being made on ending the shutdown. 

• The chart below looks at market odds on likely government shutdown length, per Polymarket. The white line on the chart is the shutdown odds for 30 days or more. The orange line is the shut down odds for 10 to 29 days.
• So, the firmer odds are with the shut down lasting 10-29 days, while the shutdown odds for 30-days or more have ticked down slightly, likely in light of recent comments. The shutdown odds lasting for 4-9 days are sub 5.
• At this stage, markets are taking the shutdown in their stride, with equity sentiment remaining very buoyant, while US Tsy yields track recent ranges. All else equal the longer the shutdown lasts the bigger the impact it can be on US growth. 

Fig 1: US Government Shutdown Odd Length, 10-29 Days (Orange Line), 30 Days or More (White Line) 

Source: Bloomberg Finance L.P./MNI 

Earlier remarks from US President Trump via Truth Social suggested there was a willingness to negotiate with the Democrats around healthcare, as the US government shutdown continues. Trump did lay blame for the shutdown with the Democrats and also stated they should re-open the government immediately. Comments from Democrat leaders for both the House and the Senate stated that talks have not yet begun but that are open to negotiations with the US President. Headlines crossed a little while ago from US Republican Johnson (who is the House Speaker) that an end to shutdown this week was unlikely. Still, Trump stated to Newsmax that progress was being made on ending the shutdown. 

• The chart below looks at market odds on likely government shutdown length, per Polymarket. The white line on the chart is the shutdown odds for 30 days or more. The orange line is the shut down odds for 10 to 29 days.
• So, the firmer odds are with the shut down lasting 10-29 days, while the shutdown odds for 30-days or more have ticked down slightly, likely in light of recent comments. The shutdown odds lasting for 4-9 days are sub 5.
• At this stage, markets are taking the shutdown in their stride, with equity sentiment remaining very buoyant, while US Tsy yields track recent ranges. All else equal the longer the shutdown lasts the bigger the impact it can be on US growth. 

Fig 1: US Government Shutdown Odd Length, 10-29 Days (Orange Line), 30 Days or More (White Line) 

US equities continue to ignore any negative inputs as it consolidates its recent gains. This morning US futures have opened lower on our open as little headway is made on the US shutdown, E-minis(S&P) -0.15%, NQZ5 -0.20%. The AUD looks to be trying to build on its recent gains in the crosses, being led by AUD/JPY which has ripped higher on the LDP election outcome.

• EUR/AUD - Overnight range 1.7653 - 1.7746, Asia is currently trading around 1.7715. The pair dropped lower yesterday after failing to make any headway back above 1.7800. Price has moved back toward the lower boundary of its recent 1.7600 -1.8100 range. Expect sellers to fade bounces while price remains below 1.8000.
• GBP/AUD - Overnight range 2.0327 - 2.0380, Asia is trading around 2.0400. The move lower has stalled back toward its support around 2.0300 where demand has initially returned. The price action of the pair is looking potentially exhaustive but a sustained break sub 2.0300 is needed to open up a deeper pullback towards 1.9800/2.0000. 
• AUD/JPY - Overnight range 98.90 - 99.53, Asia is trading around 99.50. The pair has surged higher for good reason on the election outcome. With Risk surging higher at the same time the carry trade will start to be looked at again. Dips will now be supported as the focus now turns toward 100 and then beyond.
• AUD/NZD -  Overnight range 1.1324 - 1.1346, the cross is dealing in Asia around 1.1340. The Cross has seen some selling to cap the move above 1.1400 for now, price action suggests we could potentially see more reversion back to the mean but expect disp to towards 1.1200 to now be supported.

Fig 1: AUD/JPY spot Weekly Chart

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