Important test for AUD, CAD and NZD longs - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that they like AUD and CAD longs against JPY and USD and the positioning data don’t do a lot to fill them with encouragement.

Key Quotes

“The combined AUD, NZD and CAD long hasn’t been this big since AUD and CAD were worth more than a dollar each. Markets, as eager to jump on a new trend as teenagers, have been enthusiastic buyers of the idea that the Fed is old hat in the tightening cycle and the fun comes from BOC/RBA/RBNZ. It’s better to be too early than too late, but the RBA this week and the RBNZ next week will both make us wait and no-one much wants a stronger currency so the longs are going to struggle for good news, other than the ongoing sogginess of US bond yields, and the revival in commodity prices. Which is another way of saying we’ll be happy if we find AUD and CAD at these levels in a week’s time. Especially if they’re here against not just the USD but also against SGD and JPY.”

“As for USD positioning overall, it’s increasingly short and bearish. That’s a mirror image of what’s shown in the other data. Perversely, this makes me want to keep JPY shorts in place. The market is losing faith in US tax reform, and has pretty much given up on the notion of any further Fed rate hikes this year. ISM and jobs data should go on displaying a familiar pattern – OK growth, strong jobs growth, precious little real wage growth. There’s nothing in that mix to take the dollar down and the strongest correlation between TIPS and the FX market is with USD/JPY. It’s worth leep[ng EUR/JPY and AUD/JPY for now, because a complete breakdown in US yields doesn’t really make sense to me.”

“The week’s other noteworthy event is the UK MPC meeting, which comes after tomorrow’s PMI data. Those are likely to be robust enough to keep sterling bears at bay. Maybe the week’s low in EUR/GBP comes sometime on Wednesday.”

“New news in Europe seems thin on the ground. The ECB’s on holiday, the economy’s still got little inflation, but good growth numbers. The policy debate isn’t going anywhere. Nor, probably, is the euro.”