SUGAR

Another failed test at 21 USc/lb has highlighted price action over the past week. A lack of fresh news continues to be overshadowed by further debate over India’s shortfall/ import requirement, China drawing down on stocks and spec positioning ahead of the Mar17 expiry. Trade flows in 2017 remain tight; we expect a squeeze in the market through Q2 2017. Analysts have persisted with estimates of an Indian import requirement of 2 million tonnes this season, while China have released a further 250,000 tonnes. With the prompt March-17 contract nearing expiry, we note a strong potential for increased volatility as specs begin to roll or liquidate positions. The index roll period is set to begin over the coming weeks and the possibility of a spike in the soon to be prompt May contract is anticipated.

CURRENCY/MACRO COMMENTS

Holidays for the Chinese New Year ensured markets saw a slow start to the week. This was all but wiped away as the AUD broke 76 cents on a soft USD tone. Weakness guided by diminishing odds for further rate hikes in the US, saw the AUD post 0.7695 highs. Mixed US Payrolls results, made clear the Fed’s laidback approach toward hiking rates in the near term (no rush). Looking ahead, we see the AUD remaining in a 0.7650–0.7750 range, whilst the USD should struggle given the run of soft data and investor concerns for Trump policies.