EUROPEAN FX UPDATE: Aussie boosted by widely unexpected and hawkish RBA hike

Analysis details (10:09)

AUD/NZD

The RBA defied consensus overnight with a resumption of its hike cycle as markets were only assigning a 10% probability to the likelihood of a 25 bp rate rise so soon after shifting to a pause last time and in respect of mostly softer than forecast Q1 inflation data. Moreover, guidance via the accompanying statement remained hawkish as the Bank reaffirmed that it anticipates some further tightening of monetary policy will be needed, remains resolute in its determination to return inflation to target and will do what is necessary to achieve that goal. Hence, Aud/Usd rebounded sharply from around 0.6621 to breach 0.6700 and probe hefty option expiry interest between the round number and 0.6715 (1.5 bn), while the Aud/Nzd cross regained 1.0800+ status even though the Kiwi piggy-backed its Antipodean peer and bounced to 0.6205 against the Greenback from circa 0.6164 ahead of the latest RBNZ FSR, Q1 HLFS jobs report and labour cost index. Back to the Aussie, RBA Governor Lowe is due to speak at 12.20BST and key technical resistance resides vs the Buck in the form of the 200 DMA, at 0.6734 today.

DXY/EUR

Aside from the resurgence down under, the Dollar lost a bit of momentum to the Euro when EGBs returned from their long holiday weekend and played catch-up to the marked rebound in UST yields on the back of a firmer than forecast manufacturing ISM and prices paid returning to expansionary territory. However, Eur/Usd ran out of steam just above 1.1000 amidst 1.5 bn option expiries extending from 1.0990 to the psychological level and then retreated further towards Fib support at 1.0959 in wake of the ECB’s Q1 BLS showing substantially tighter credit standards, not to mention M3 data revealing slowdowns in loans to households and non-financial institutions. This gave the index another boost and sufficient incentive to top Monday’s peak within a 102.240-101.910 range in the run up to factory orders and JOLTS job openings. Note, Eur/Usd was largely unfazed by in line Eurozone inflation metrics bar a slightly softer than expected super core. 

JPY/CAD/GBP/CHF

The Yen was already underperforming across the board in further fallout from last Friday’s dovish BoJ hold before Usd/Jpy climbed closer to the current 2023 high, at 137.77 vs 137.91 on March 8, with added thrust from Aud/Jpy and other crosses rallying on the policy divergence dynamic. Meanwhile, the Loonie straddled 1.3550 against its US rival, Sterling faded after a recovery from 1.2464 to 1.2512, though gleaned some traction via an upward revision to the final UK manufacturing PMI in stark contrast to the lagging Franc that had to contend with a more contractionary Swiss manufacturing PMI after a deterioration in consumer confidence and hovered inside 0.8943-86 confines.

SCANDI/EM

Somewhat perversely, the Nok failed to derive comfort from an encouraging return to growth in the Norwegian manufacturing PMI, but the Sek stood firm regardless of Sweden’s manufacturing PMI staying sub-50.0 and unchanged after a minor downgrade. Elsewhere, the Czk was content that Czech GDP grew marginally q/q in Q1, the Huf was underpinned by a strong Hungarian manufacturing PMI and wider trade surplus, while the Cnh contained declines with the aid of the 200 DMA in the absence of the Cny as China’s Golden Week break continued.

02 May 2023 - 10:09- Fixed IncomeData- Source: Newsquawk