SUGAR MARKET OVERVIEW

The October contract rolled off the board this week with significantly less sugar going to ‘the tape’ than had been expected. With March coming on as the front month at quite a premium to the Oct close, the contract was under pressure through until Friday when the selling seemed to have cleared and the market rallied strongly.

In terms of information flow the situation is somewhat more balanced (slightly less bullish) than last week. CS Brazil and Thailand have seen some good rain and most importantly USD/BRL has rallied strongly . Specs have reduced their short position only slightly into the short squeezes we witnessed towards the end of the Oct contract.

Given the roll forward of sugar being carried, the stronger USD and slightly more favourable weather we are now expecting less in terms of a rally near term and will be looking to sell short-dated calls into any significant push higher.

CURRENCY MARKET OVERVIEW

The strength in the USD has continued through the course of last week, being exacerbated by a strong payrolls number on Friday night. BRL has been one of the weakest currencies with the election (and polls suggesting Rouseff stays in power) at the forefront of people’s minds. EUR, JPY and GBP have all continued lower and some of this selling was switched into AUD earlier in the week, although this was unwound on Friday.

AUD/USD tested the yearly low late Friday night and has held to this stage but given the macro landscape it seems likely this will break early this week. We are still looking for a break of these lows and some overshoot to the low 80s. No change is expected at this week’s RBA board meeting, and a lower unemployment number is expected on Thursday following last month’s extremely high number.