SUGAR MARKET OVERVIEW

Sugar moved lower last week, breaking through the bottom of the range, falling every day to close at 16.35. A fire at the Cosan terminal on Sunday afternoon was bought under control later that day, causing damage to two sheds, and a conveyor belt. With the Copersucar fire (the terminal next door) fresh in people’s memories, the market opened up 4% on Monday morning, but gains faded quickly as the true damage was revealed. The Oct/ May spread continues to weaken, as a glut of production from Brazil, and stocks in Thailand (that potentially cannot be rolled) continue to pressure. The spec community had increased its shorts, although with the price action on Monday it would be easy to imagine those have been reduced. In the near term the pressure remains on prices to move lower.

CURRENCY MARKET OVERVIEW

Whilst the AUD continues to trade in the 9200–9500 range, the currency weakened during the course of the week. GS downgraded their 3m view on equities, and a weaker bond market, encouraged USD buying across the board. All the elements remain in place for a move lower, but in a low volatility world, AUD represents an attractive place to park money, with both political certainty and positive carry. The RBA is not expected to change the policy rate this week, and Friday’s Statement of Monetary Policy is worth watching, for forward guidance for both, the economy and currency. USD/BRL has strengthened in line with the USD appreciation, although Rousseff is falling further behind in the polls. This should favour the strength in BRL over the medium term into the October election.