EUROPEAN FX UPDATE: Aussie buoyed by RBA minutes, Kiwi downed by NZ CPI

Analysis details (10:31)

AUD/NZD

Another sharp swing in direction down under and highlighted by a pronounced bounce in the Aud/Nzd cross from just shy of 1.0700 to 1.0782, as the Aussie took heed of hawkish RBA minutes that heightened the prospect of a hike next month. To recap, the accounts from October’s policy meeting revealed that the Board considered raising rates by 25 bp or holding steady and agreed the case for another pause was the stronger one, while members noted data on inflation, jobs and updated forecasts would be available at the November confab. The minutes also noted that members expressed significant concern about upside inflation risks and said progress in lowering service sector inflation was slow, while the Board had a low tolerance for a slower return of inflation to target and repeated that further tightening may be required if inflation is more persistent than expected. Aud/Usd climbed from sub-0.6350 towards 0.6375, while Nzd/Usd drifted back down through 0.5900 from 0.5929 in response to softer than forecast NZ inflation data, and previous in terms of the RBNZ Sectoral Factor Model Index.

DXY/GBP  

The Dollar and index gleaned some traction from a further retracement in US Treasuries and long end underperformance after another iteration from current FOMC voter Harker along the lines that the Fed should not be considering more rate increases. The DXY may also have drawn encouragement from holding just above the psychological 106.000 level on Monday and subsequently probing a Fib within 106.200-490 confines amidst Sterling’s loss of 1.2200+ status on the back of softer than expected UK wages and falls in HMRC payrolls. Moreover, Cable tested 1.2150 in wake of typically dovish remarks from BoE’s Dhingra aside from the more widely held view that weekly average earnings overstate the outlook for pay growth - see 10.12BST post on the Headline Feed for details.  

CHF/EUR/CAD/JPY

All making way for the Greenback recovery, as the Franc slipped back beneath 0.9000, the Euro faded just over 1.0560, the Loonie stalled ahead of 1.3600 and the Yen failed to maintain any real momentum following a flirt with 149.50. However, Eur/Usd should be cushioned by 1.3 bn expiry interest at the 1.0500 strike given little upside reaction to a better than anticipated German ZEW survey and Usd/Jpy could be capped into 150.00 where 1 bn expiries reside, not to mention the chance of Japanese jawboning if not actual intervention approaching the mark. Meanwhile, Usd/Cad gets Canadian CPI metrics for some independent impetus alongside US retail sales.

SCANDI/EM

A familiar refrain from Riksbank Governor Thedeen who said things are moving in the correct direction in terms of inflation falling, but price pressures remain too high and the Bank needs to ensure a return of purchasing power and turning to the Sek he now believes it is less undervalued, in the region of 10-15%. This after the recent pull-back in Eur/Sek, so understandable. Conversely, the Czk was hampered by CNB Governor Michl keeping cards close to his chest in regard to how the decision will go at the November and December meetings, with the door open to all options, albeit adding that whether rates are slightly lowered by end-2023 or not, the Bank will remain hawkish to avoid renewed high inflation. Elsewhere, the Cny and Cnh suffered more Chinese property sector and general debt angst with Country Garden on the cusp of a default as the grace period for a Usd 15 ln coupon payment nears expiry, an Evergrande unit seeking creditor approval to extend Yuan-denominated bonds and the PBoC said to be instructing state banks to roll over local govt loans with longer term and lower rates, while setting up an emergency liquidity tool with banks whereby loans made are required to be repaid in two years.

17 Oct 2023 - 10:31- Fixed IncomeData- Source: Newsquawk