USD MACRO CURRENCY UPDATE:
The post FOMC USD sell oﬀ appears to be complete with most sugar relevant currencies resuming their downtrend. AUD and NZD both technically broke higher only to fail and move back into the range. From a charting (technical) point of view this would suggest a test of the bottom of the range. 7550 for AUD and 7200 for NZD. We maintain our short AUD position looking for low 70s. Key data out this week are US employment on Friday night and the RBA decision the following Tuesday. The market is now pricing a greater than even chance of a cut (66%), although waiting until the May meeting would give the RBA to chance to see the CPI outcome and also the quarterly Statement of Monetary policy. Either way a cut is now fully priced in by the May meeting.
The Brazilian Real has chopped around at the top of the recent range, closing the week in the middle of the 3.08/3.30 range. Finance minister Levy spoke overnight and expressed comfort with the depreciating currency working to help out the current account deficit and industry. The currency sell oﬀ has lost some momentum and it would not be surprising to see either a sideways range or even a stronger BRL for a short period of me. Ultimately it will be in the country’s best interest to weaken the Real further.
Sugar has traded to life of contract lows (in USD) to finish the quarter. Monday 30th traded and closed with an 11 handle. There was a short period of respite when spreads (May/July, July/Oct) strengthened, but this looked more like a position flush than a sustainable move. Indeed, May/July finished down on the session to –17.
The bearish news continues with rain in Brazil, and bigger crops in both Thailand and India. The market believes (all) these producers are under hedged with selling being walked lower in the hope of a bounce that has alluded them for now.
The ‘spec’ community has established close to a record short position (–115k) but given the price action they are very profitable; and given the above view on producers selling a little higher up, will be likely to run a large stop loss on their position in the hope the producers get forced to market sooner rather than later.
The market is never a one-way street with a ‘technical’ bounce always possible, although an immediate catalyst is hard to find.