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The FX Trader: AUD getting overbaked?
John J. Hardy
Global Head of Macro Strategy
Summary: The Aussie is flying high on the run-up in metals and now strong employment data, but the move may be overdone. Elsewhere, GBP remains in a world of hurt and USDJPY is dancing nervously around the 155.00 figure as market perhaps reluctant to challenge Japanese officialdom.
What to know: quick bullets
- The US government is set to re-open, cementing what the market was already expecting earlier this week – it isn’t serving as an immediate catalyst. The incoming data schedule is not yet known and we may never get some of it, as data wasn’t even collected during the month of October in some cases.
- A big liquidity splash incoming into the US economy? We have a US Treasury account that is loaded with funds – over USD 900 billion – and looking ready to draw those down, which will enhance liquidity. Treasury Secretary Bessent was out yesterday talking USD 2,000 stimulus checks to all. This is high velocity money that will go straight into the economy – or will it go to credit card balances (?) – and could put the Fed on watch for a tick up in growth and inflation even if a lot of the incoming data on the non-AI data center economy is looking wobbly at best, and in out-and-out recession at worst. Very interesting talk as well of giving every newborn child USD 1,000 in US stocks that parents can add to – to be granted to the child at age 18 – a sort of Universal Basic Capital rather than just Universal Basic Income. The idea is to fund all of this from tariff revenue based on tariffs that may or may not be legal and the entire setup skirts the power of Congress – this is historic stuff.
- The Aussie (AUD) got another jolt higher on strong jobs data overnight and the latest pump in metals prices and even perhaps CNY strength at the margin helping the currency, although it may be getting to be a bit much as discussed in the AUDNZD chart below – one of this year’s best trenders – a bit ironic when it was rangebound for over a decade, if with some great modest trends during that period.
- Sterling remains a dog, not just on the weak labor market but on concerns that a labor party member may rise to challenge Keir Starmer. Nothing firm on the latter – but with or without this challenge, tough to find any rays of light for sterling. This morning’s Q3 GDP data was slightly negative (missing by 0.1% on the QoQ and YoY numbers at 0.1%/1.3% rexepctively) and the Sep. Manufacturing Production number was ugly at -2.2% YoY vs. -1.7% expected, with the Trade Balance number better than expected at GBP -18.9 billion. EURGBP is testing new highs above 0.8830 and GBPCHF posted its lowest daily close…ever at 1.0478 yesterday, leaving only the Liz Truss mini-budget spike from late 2022 below 1.0200 as the last chart point.
- USDCNH – making waves overnight with big drop relative to normal volatility, especially late in Asian session – could be driving the USD weakness this morning.
- EURCHF – keep an eye on the all time lows coming into view in the low 0.9200’s, an area that has been tested multiple times since the summer of 2024, for whether the SNB wants to put up a fight on a further drop – 0.9206 was the all time intraday low, if the SNB surrenders on a run lower, we could be looking at 0.9000 next.
- The comeback in Scandies was moderated in EURNOK’s case by an ugly sell-off in crude. EURSEK still looks heavy ahead of the big sub-10.90 range lows – incoming German stimulus next year has me liking an eventual move to 10.50 and even beyond next year, with the period from now into year-end seasonally bearish for EURSEK.
Chart focus: AUDNZD
The AUDNZD pair has been one of this year’s great trenders, driven by the ever-wider divergence in yields at the front of the yield curve as Aussie rates have remained firmly anchored and even risen sharply from the October lows - especially overnight on the strong AU employment data - while NZ rates trended consistently lower from July through mid-October before stabilizing. Arguably the yield spread – currently at 107 basis points for 2-year swaps, a level last seen in when AUDNZD was trading 1.25+ justifies further upside to 1.2000 and beyond, but near term, have to wonder if this is as good as it gets. Note the beautiful Elliott Wave patterns from the lows to the latest surge higher looking like a “fifth wave of wave five”. Yes, the saying goes that we should follow the trend until it bends, but this may be as good as it gets for a while. To prove the point, however, we would need a sharp rejection of this latest surge above 1.1600.
The rundown
- EURUSD – impossibly bottled up and needing to show impulsivity for a technical toehold here – really needs to vault and close well through 1.1600 to re-ignite any upside focus – until then nominally neutral and more bearish on any sharp sell-off through 1.1550 again.
- JPY pairs – watching risk sentiment here and the US treasury market, with US equities at nervy levels after the sharp comeback from the latest sell-off. Technically, looks like traders are all looking at one another to decide if they should squeeze USDJPY above 155.00 and take on Japan’s MoF and BoJ. If the global risk rally resumes, the squeeze scenario looks more likely.
- GBPUSD and EURGBP – GBPUSD wrapped up in the USD outlook and EURUSD on whether we should prefer EURGBP or GBPUSD to express a negative GBP view. The back up in GBPUSD despite the negative data this morning must be making sterling shorts nervous tactically.
- AUDUSD – AUD doing most of the heavy lifting in getting this one higher and pointing to a challenge of the 0.6600 level – but seems likely we would need some USD weakness in addition to the AUD strength.
- USDCAD – looking pivotal here – solidly bearish reversal recently on rejecting the price action above the prior 1.4080 high – the deathblow for the rally would be significant plunge through 1.400, which resets the focus lower on the 1.3900 area for a fuller confirmation that we may be setting up a massive head and shoulders formation.
Next steps
There is a lot going on in Washington and some interesting new policy impulses in the mix from Treasury Secretary Bessent. Will the market fret new fiscal excess as Trump goes hard populist to throw bread at the masses? The US dollar has been quiet, but needs to send a signal here soon and seems to be trying this morning. USDCAD and AUDUSD suggest USD is softening – as does EURUSD this morning above 1.1600 – today could prove pivotal if the latter sticks a strong close.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
JPY weakness remains the strongest signal, together with NZD weakness – although the latter may be getting overdone as the NZD shorts may be overplayed here. CNH strength sticks out, especially on the move overnight versus the US dollar.
Table: NEW FX Board Trend Scoreboard for individual pairs. EURSEK has flipped back to negative and enjoys a seasonal tailwind to the downside through year-end. Elsewhere, the AUDUSD threatens an upside trend flip, while the USDCHF “uptrend” is likewise looking on tilt, as is EURUSD soon if it sticks a rally well above 1.1600 for two or three days.
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The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..