Key Headlines

  • The bitten Bitcoin, China RRR cut on the way, concern that the Chinese government crackdown on big tech will extend into 2022, hawks turned to doves, Saudi Arabia boosted the prices of its crude, signalling confidence in the demand outlook.

FX Flows

Small recovery for US equity futures, S&P500 up more than 0.44%, Dow futures +0.6%. Bitcoin has stabilised but difficulty to reach above $50k.

Mixed risk sentiment, US e-minis are up but most of Asian equity indices are in red. Hang Seng Tech Index fell as much as 2.35% amid concern that the Chinese government crackdown on big tech will extend into 2022. Alibaba ended the morning -5.8%.

Japanese were buyers of AUD¥ ahead of Tokyo open, they bought another round when there was a brief pull back to 79.10. Fresh $Yen bids were rumoured to be placed near 112.80-85 and offers linked to exporters at 113.10. Difference in monetary policies should keep USD supported.

AUD$ has broken key levels 0.7100 convincingly, we tested 0.6995 very briefly and AUD¥ demand helped bring the AUD$ higher. There was also some buying of AUDNZD. I believe leveraged names will be looking to fade the AUD$ move, likely nearer to 0.7080. Total of A$1.8bn worth of 0.6900 AUD$ put strikes mature later this week.

More Covid news from the weekend – new cases on the rise in Southern Europe like Italy and Spain. Death rates in Spain and Italy remain comparatively very low, but have also started to creep upwards. EUR$ traded lower, not a lot can be said about the flows.

BoE meeting next week should seal the fate of the GBP. On Friday, Michael Saunders, a hawkish external MPC member issued a warning that Omicron virus added uncertainty to the economic outlook, reinforced expectations that BoE would hold policy rate at 0.1%.

ING Bank

Friday's November US jobs report has kept the narrative alive of the Fed wanting to push ahead with quicker tapering and early tightening even as the full effects of the Omicron variant are unknown. As we were noting last week, the dramatic flattening of the US 2-10 year US Treasury curve typically sees underperformance of the commodity complex (true in G10), while the Japanese yen and Swiss franc were the only two currencies stronger against the dollar over the last week.

This week could see a subtle shift in direction. Friday will see the US November CPI release, expected at a new cyclical high of 6.7% year-on-year with upside risks. That should keep short-dated US yields and the dollar supported. But weekend comments from Chief US Medical Advisor, Anthony Fauci, that Omicron looks more transmissible but less severe could provide some breathing room for risk assets. That could mean somewhat of a comeback for the commodity currencies of Australia, Canada (which also have policy meetings this week) and Norway. This could potentially see a reversal of the euro and Japanese yen cross rates, with both currencies having performed well in a risk-averse environment.