Get started

Australiandollar

Today’s Notable Sentiment ShiftsAUD – The Australian dollar got a much-needed lift on Thursday after a resoundingly strong set of jobs data reinforced market wagers on an early rise in interest rates, keeping short-term bond yields up at three-month highs. Following the report, Capital Economics noted that “the upshot is that the labour market is now at its tightest in years, and the continued rise in job vacancies suggests it is set to tighten further in the months ahead.” Consequently, Capital Economics expect the RBA to cease it’s A$4 billion per week bond purchase programme as soon as its February meeting.
by thunderpips
4
AUD CAD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy In Dec the RBA kept rates at 0.10% and weekly bond purchases at A$4bln until mid-Feb, as expected. They reiterated their commitment to maintain highly supportive monetary conditions and won’t raise rates until actual inflation is sustainably within their 2%-3% target range. They noted that the economy is recovering from the Delta slowdown and is expected to return to pre-Delta path in 1H22. The positive take from the meeting was that the RBA did not think Omicron will derail the expected recovery and sounded more optimistic than markets anticipated. They also said they will consider the future of their QE program at the Feb meeting and outlined their criteria for that which includes actions of other central banks, bond market functioning and actual and expected progress towards the goals of full employment and inflation consistent with their target. All in all, the bank still had a dovish stance but was more optimistic about the economy than expected. Furthermore, out of the 3 criteria set by the bank, the first two is arguably a green light already, which means the only thing we are waiting for is incoming employment and inflation data to see whether it’s good enough to stop QE. 2. Idiosyncratic Drivers & Intermarket Analysis There are 4 key drivers we’re watching for Australia’s med-term outlook: The virus situation – so far, the RBA has been positive about a post-Delta recovery, but incoming employment and inflation data will be crucial to see whether that optimism is justified. China – Even though the PBoC has finally stepped up with new stimulus & some fiscal support is expected in 1H22, the Covid-Zero policy in China does pose a risk to their expected 2022 recovery so the recent rapid rise in cases is one to watch. Politically, the AUKUS defence pact could see possible retaliation from China against Australian goods and is always something to keep on the radar. Commodities – Iron Ore, (24% of exports) and Coal prices (18% of exports) are important for terms of trade, and with both pushing higher on PBoC easing, that is a positive for the AUD as long as they maintain their recent push higher. Global growth – as a risk proxy, the global economy is an important consideration for AUD, which means the expected slowdown in growth and inflation globally is an important point to consider, but if China can put in a solid year that should limit the fall out if the global economy slows faster than expected. 3. Global Risk Outlook As a high-beta currency, the AUD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the AUD. 4. CFTC Analysis Latest CFTC data showed positioning change of -2120 with a net non-commercial position of -91486. As outsized net-shorts are usually seen as a contrarian indicator we want to be mindful of potential squeezes higher for the AUD, which also means that the AUD is most likely going to be more sensitive to positive data compared to negative data because a lot of the bad news associated with the currency has arguably been priced in. The recent downside in equities have seen an additional increase in AUD net-shorts with the positioning hitting a new record low which means the risk to reward of chasing the AUD lower from here isn’t very attractive. 5. The Week Ahead The most important data point for the AUD in the week ahead is the upcoming employment data scheduled for Thursday. Recall that the RBA gave us three criteria they will be watching to determine the future of their asset purchase program, and with 2 of those 3 criteria arguable already confirmed, the only thing left is the economic data. Market consensus is looking for a much lower number in Dec (43.3K) compared to the massive surprise beat in Nov (366K) and expect the Unemployment Rate to drop to 4.5% from the prior of 4.6%. A solid beat in the data should see markets pricing in a higher probability that the RBA announces an end to their QE program at the Feb meeting and could see some of that very stretched net-short positioning seeing a bigger unwind. Alternatively, money markets have been very aggressive in their policy expectations for the RBA with 4 hikes priced by the end of the year, which means a much bigger than expected miss could see some of that pushed out to 2023 as a delayed end of QE means less optionality for the RBA later in the year. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy In Dec the BoC left rates at 0.25% as expected and maintained forward guidance where it expects rates at current levels until the middle quarters of 2022. This disappointed some participants who were looking for the bank to announce that the output gap could be closed in 1Q22. On inflation , even though the bank still thinks it will ease from 2H22, they did drop ‘temporary’ when referring to price pressures, similar to the Fed’s removing the word ‘transitory’. The bank took a slightly bleaker view on growth, pointing to both the new Omicron variant and flooding in British Columbia as possibly drags on growth and something that could elevate supply chain issues. What disappointed markets a bit was that the bank said none of the recent developments warrants any further adjustments to normalization, which disappointed the bulls looking for a possible hawkish tilt. The bank noted that employment is back to pre-covid levels, and economic momentum in Q4 were solid, but the overall tone wasn’t enough to convince markets of a Jan hike at that time, but markets have since then continued to ramp up hike bets with money markets pricing in a >70% chance of a hike at the Jan meeting and pricing in close to 6 hikes for 2022. Keep in mind that the bank was already concerned about growth before the recent Omicron restrictions, which means the likelihood of them brining forward output gap projections seems unlikely and for that reason we think is setting up for a disappointment and possible repricing lower in money market expectations in the upcoming meetings. 2. Intermarket Analysis Considerations Oil’s massive post-covid recovery has been impressive, driven by three drivers: supply & demand (OPEC’s production cuts); improving global economic outlook and improving oil demand outlook, even though slightly pushed back by Delta concerns; higher for longer than expected inflation . Even though Oil has recovered a lot of its recent downside and have proven our caution wrong, we are still cautious going into the first two quarters. The drivers keeping us cautious is expectations of a more hawkish Fed, slowing growth and inflation , lower inflation expectations (due to the Fed) and a possible supply surplus in 1Q22. If our concerns do materialize into downside for oil prices it should put pressure on the CAD. There have however been shortterm drivers supporting Oil prices and has kept the CAD more supported than we would have expected. 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis Latest CFTC data showed a positioning change of +3649 with a net non-commercial position of -7376. Recent price action has seen the CAD take a very similar path compared to April and Oct 2021 where markets were way too aggressive to price in upside for the CAD only to see majority of it unwind. We think the CAD is setting up for a similar disappointment with money markets way too aggressive on rate expectations for 2022.
by thunderpips
10
AUDNZD: Consolidation & Complete Indecision 🇦🇺🇳🇿 For the 4 consequent weeks, AUDNZD is consolidating. The pair is coiling within a horizontal trading range. From a current perspective I see two potential scenarios: In case of a bullish breakout of the range (candle close above 1.0645 - 1.0668) a bullish continuation to 1.073 level will be expected. In case of a bearish breakout of the range (candle close below 1.0566 - 1.059) a bearish move to 1.057 level will be expected. And while the market is staying within the boundaries of the range you either wait for a breakout or buy/sell its support/resistance. ❤️Please, support this idea with like and comment!❤️
Long
by VasilyTrader
12
AUDJPY: Bullish Breakout & Continuation 🇦🇺🇯🇵 Hey traders, From the beginning of the year, AUDJPY was quite bearish. The price was steadily falling within a wedge pattern. This week a strong horizontal demand zone was reached. The price bounced nicely from that and broke a resistance line of the wedge. Now the price will go higher. Goals: 83.75 / 82.4 If you missed the entry consider an occasional retest. ❤️Please, support this idea with like and comment!❤️
Long
by VasilyTrader
8
EURAUD: Update & Your Trading Plan 🇪🇺🇦🇺 A couple of days ago EURAUD retested a broken major trend line on a daily time frame. Watching how the price reacted to that on intraday time frames I spotted a head & shoulders pattern on 4H time frame. To short wisely we need to wait for a bearish breakout of 1.572 - 1.575 horizontal neckline. Then sell the market aggressively or on a retest. Initial target will be 1.559 In case of a new higher high higher close on 4h, the setup will be invalid. ❤️Please, support this idea with like and comment!❤️
Short
by VasilyTrader
11
AUD JPY - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy In Dec the RBA kept rates at 0.10% and weekly bond purchases at A$4bln until mid-Feb, as expected. They reiterated that they are committed to maintaining highly supportive monetary conditions and won’t raise rates until actual inflation is sustainably within their 2%-3% target range. They noted that the economy is recovering from the Delta slowdown and is expected to return to pre-Delta path in 1H22. The positive take from the meeting was that the RBA does not think Omicron will derail the recovery and sounded a bit more optimistic than markets anticipated. They also said they will consider the future of their QE program at the Feb meeting and outlined their criteria which include actions of other central banks, bond market functioning and actual and expected progress towards the goals of full employment and inflation consistent with their target. All in all, the bank still had a dovish stance but was more optimistic about the economy than expected. Furthermore, out of the 3 criteria set by the bank, the first two is arguably a green light, so now we wait for incoming economic data to see whether it’s good enough for the bank to stop QE . 2. Economic & Health Developments There are 4 key drivers we’re watching for Australia’s med-term outlook: The virus situation – so far, the RBA has been positive about a post-Delta recovery, but incoming employment and inflation data will be crucial to see whether that optimism is justified. China – Even though the PBoC has finally stepped up with new stimulus & some fiscal support is expected in 1H22, the Covid-Zero policy in China does risk that the expected 2022 recovery might be delayed (not derailed) so the recent rapid rise in cases is one to watch in case China sees additional lockdown restrictions. Politically, the recent AUKUS defence pact could see possible retaliation from China against Australian goods. Commodities – Iron Ore, (24% of exports) and Coal prices (18% of exports) are important for terms of trade, and with both of them pushing higher on PBoC easing, that is a positive for the AUD as long as they remain their recent push higher. Global growth – as a risk proxy, where the global economy goes from here will be another important consideration for AUD, with more focus on China though. 3. Global Risk Outlook As a high-beta currency, the AUD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the AUD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the AUD in the med-term , but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 4. CFTC Analysis Latest CFTC data showed positioning change of -7526 with a net non-commercial position of -89366. As outsized net-shorts are usually seen as a contrarian indicator we want to be mindful of potential squeezes higher for the AUD, which also means that the AUD is likely to be more sensitive to positive data than negative data. The downside in equities have seen an additional increase in net-shorts and has once again moved closer towards historical lows, so be weary of short squeezes in the event of positive news. 5. The Week Ahead The week ahead is light in terms of economic data for the Aussie Dollar with only Retail Sales on the schedule. Even though it’s not a tier 1 data point, a substantial surprise could be market-moving for the AUD in the event of an unexpected beat which might see some of the stretched net-shorts square up and could create some upside in the AUD. Apart from that, the idea of a faster Fed as well as the steep rise in global yields have put equities under pressure, and as a favourite risk proxy has hit the AUD quite hard, so any further downside in equities will be important for the AUD this week and could see further pressure added if it also coincides with additional lockdown fears in China. On the China front we also have Chinese inflation data coming out this week so keep that on the radar for potential reactions in the AUD as well. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy At their Dec meeting the BoJ kept policy mostly unchanged apart from unanimously voting to scale back emergency pandemic relief funding from March which includes tapering corporate bond and commercial paper buying, but they did also vote to extend a portion of the pandemic relief loan scheme to March for smaller firms. As always, the BoJ said they are ready to add additional stimulus and easing steps as the economy needs it. The bank reiterated that even though the economy has picked up it does still remain in a severe situation due to the COVID-19. The bank remains dovish and is unlikely going to change anytime soon. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving for the JPY; and although monetary policy expectations can still prove marketmoving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. As the Fed and other banks start to normalize, we do need to remember that it means those fiscal and monetary policy support is being reduced, which could mean a lot more volatility for markets in the weeks and months ahead. Even though that doesn’t mean our med-term bias for the JPY has changed, it simply means that we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create some fantastic directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the type of market environment from both a risk and cycle point of view. With the Fed tilting more aggressive, we think that opens up more room for curve flattening to take place with US02Y likely pushing higher while US10Y underperform. In this environment we do see some mild upside risks for the JPY, but we should not look at the influence from yields in isolation and also weigh it up alongside underlying risk sentiment and price action in the USD of course. 4. CFTC Analysis Latest CFTC data showed a positioning change of -9160 with a net non-commercial position of -62262. Even though the JPY’s med-term outlook remains bearish , the big net-shorts for both large speculators and leveraged funds always increases the odds of more punchy safe haven flows and mean reversion when risk sentiment deteriorates. However, despite risk sentiment taking a hit in the past trading week, the JPY has remained pressured as the move in US yields kept any JPY rallies in check. 5. The Week Ahead In the week ahead the biggest focus for the JPY will be on overall risk sentiment with the big rally in risk sentiment going into the last few trading days of the year with S&P futures managing to squeeze out another all-time high and Nasdaq futures getting very close to doing the same. The big amount of upside has been mostly attributed to equities taking the path of least resistance ( med-term bias remains tilted higher) and moves was probably exacerbated by thinner liquidity and lower volumes. If that momentum can continue at the start of the new year, we can expect to see further downside for the safe haven JPY and will be a key focus for the currency for the week ahead. Apart from that, keeping an eye on US yields will be important as always.
by thunderpips
2
AUD USD - FUNDAMENTAL DRIVERSAUD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy In Dec the RBA kept rates at 0.10% and weekly bond purchases at A$4bln until mid-Feb, as expected. They reiterated that they are committed to maintaining highly supportive monetary conditions and won’t raise rates until actual inflation is sustainably within their 2%-3% target range. They noted that the economy is recovering from the Delta slowdown and is expected to return to pre-Delta path in 1H22. The positive take from the meeting was that the RBA does not think Omicron will derail the recovery and sounded a bit more optimistic than markets anticipated. They also said they will consider the future of their QE program at the Feb meeting and outlined their criteria which include actions of other central banks, bond market functioning and actual and expected progress towards the goals of full employment and inflation consistent with their target. All in all, the bank still had a dovish stance but was more optimistic about the economy than expected. Furthermore, out of the 3 criteria set by the bank, the first two is arguably a green light, so now we wait for incoming economic data to see whether it’s good enough for the bank to stop QE. 2. Economic & Health Developments There are 4 key drivers we’re watching for Australia’s med-term outlook: The virus situation – so far, the RBA has been positive about a post-Delta recovery, but incoming employment and inflation data will be crucial to see whether that optimism is justified. China – Even though the PBoC has finally stepped up with new stimulus & some fiscal support is expected in 1H22, the Covid-Zero policy in China does risk that the expected 2022 recovery might be delayed (not derailed) so the recent rapid rise in cases is one to watch in case China sees additional lockdown restrictions. Politically, the recent AUKUS defence pact could see possible retaliation from China against Australian goods. Commodities – Iron Ore, (24% of exports) and Coal prices (18% of exports) are important for terms of trade, and with both of them pushing higher on PBoC easing, that is a positive for the AUD as long as they remain their recent push higher. Global growth – as a risk proxy, where the global economy goes from here will be another important consideration for AUD, with more focus on China though. 3. Global Risk Outlook As a high-beta currency, the AUD benefited from the market's improving risk outlook coming out of the pandemic as participants moved out of safe-havens. As a pro-cyclical currency, the AUD enjoyed upside alongside other cyclical assets supported by reflation and post-recession recovery best. If expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the AUD in the med-term, but recent short-term jitters are a timely reminder that risk sentiment is also a very important short-term driver. 4. CFTC Analysis Latest CFTC data showed positioning change of -7526 with a net non-commercial position of -89366. As outsized net-shorts are usually seen as a contrarian indicator we want to be mindful of potential squeezes higher for the AUD, which also means that the AUD is likely to be more sensitive to positive data than negative data. The downside in equities have seen an additional increase in net-shorts and has once again moved closer towards historical lows, so be weary of short squeezes in the event of positive news. 5. The Week Ahead The week ahead is light in terms of economic data for the Aussie Dollar with only Retail Sales on the schedule. Even though it’s not a tier 1 data point, a substantial surprise could be market-moving for the AUD in the event of an unexpected beat which might see some of the stretched net-shorts square up and could create some upside in the AUD. Apart from that, the idea of a faster Fed as well as the steep rise in global yields have put equities under pressure, and as a favourite risk proxy has hit the AUD quite hard, so any further downside in equities will be important for the AUD this week and could see further pressure added if it also coincides with additional lockdown fears in China. On the China front we also have Chinese inflation data coming out this week so keep that on the radar for potential reactions in the AUD as well. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy A lot more hawkish than expected is how the Fed’s Dec decision can be summed up. The Fed doubled the pace of tapering to $30 billion per month which will see the QE program conclude by March 2022 as was widely expected. The big change came from the updated Summary of Econ Projections where the median dot plot pencilled in 3 hikes for the Fed next year (up from just shy of 1 hike projected just 3 months ago), confirming money market and Fed Fund Future expectations. Fed Chair Powell explained they hadn’t decided whether to pause between the end of tapering and a first hike but reiterated that rates will likely only rise when the taper has concluded. Another positive shift was Powell’s comments that the balance of goals means it could possibly raise rates before full employment has been met due to high inflation, and also stated that with inflation above target, they cannot wait too long to get to maximum employment with current levels of inflation described as a threat to full employment. The hawkish tilt even went so far that the bank started to discuss the balance sheet but said they didn't make any decisions on when the balance sheet would shrink. Even though the dots projected 3 hikes for 2022, the updated rate hike trajectory only showed 1 additional hike over the forecast horizon, which combined with a lower terminal rate was less hawkish than some had feared. Nonetheless, with this recent meeting the Fed is now the second most hawkish CB after the RBNZ and should be supportive for the USD in the med-term. This past week’s meeting minutes also revealed that the bank has started discussing QT with majority of members thinking it’s appropriate to start QT soon after rate lift off which was a much more hawkish tilt than expected from the Fed. 2. Real Yields With the hawkish tilt from the Fed, it should see breakeven inflation rates fall faster than US10Y as a more aggressive Fed should see med-term growth & inflation expectations fall. Rising real yields should be good for the USD as well and one to keep on the radar, especially after this weeks divergence. 3. Global Risk Outlook What happens to growth and inflation this year will be key for the USD, not only growth and inflation in the US though but also on a global scale. The USD usually does bad in reflationary environments (where growth and inflation accelerates globally), while the USD usually does very well when growth and inflation decelerates globally). So, expectations that we are seeing a slowdown in both of them globally should be a positive input for the USD in the med-term. However, it also means there will be a lot of focus on the incoming data to see how it develops. 4. CFTC Analysis Latest CFTC data showed a positioning change of +2289 with a net non-commercial position of +39078. With large specs net-longs close to 2019 highs and leverage funds USD longs also looking stretched, and with a lot of the Fed hawkishness arguably priced in, the USD has been looking vulnerable to some unwinding, which is what we saw this past week. Even though the Fed remains on a hawkish path (for now) and the USD remains bullish from a fundamental outlook point of view, with positioning where it is right now, any recovery in risk sentiment or bad economic data in the US relative to the rest of the world could continue to add some pressure on the Greenback in the short-term. However, it will take a lot to change the overall fundamental bullish outlook given what markets are expecting from 2022. 5. The Week Ahead In the week ahead all eyes will be on US CPI as the main event. Even though there are expectations for inflation to slow, we are not there yet as participants are expecting yet another strong increase for the YY print with the headline expected to push above 7% and the Core measure expected well above 5%. Are these numbers that will scare the markets or the Fed, arguably not, because what more is there to price in. With markets already pricing in 3 hikes (a high probability of a first one in March) and pricing in higher probabilities of more than 3 hikes alongside QT, this week’s print needs to be something truly exceptional to see even more priced in. Thus, just like with NFP last week, we are anticipating more of a downside risk for the USD given the very high bar set by the markets. With everything that has been priced in for the Fed already, an unexpected beat can open up some decent downside in the USD. Just keep in mind that will be tactical trades as the fundamental outlook remains bullish for the USD.
by thunderpips