EUROPEAN FX UPDATE: Aussie elevated as jobs data stokes hawkish RBA calls

Analysis details (09:53)

AUD/NZD

The Aussie has encountered some resistance above 0.7250 vs the Greenback and around 1.0700 against the Kiwi, but remains bid and the clear G10 outperformer in wake of an upbeat labour market report overnight, even allowing for the fact that the survey period ended before the Omicron outbreak. To recap, payrolls rose 64.8k vs 43.3k expected and the unemployment rate fell to 4.2% vs 4.5% forecast and 4.6% previously, prompting Westpac and GS to revise their RBA policy outlooks radically, with the former now anticipating a 15 bp hike in August followed by 25 bp in October compared to no move before February next year, and the latter predicting QE to end in February and tightening the month after. Meanwhile, Nzd/Usd is still capped below 0.6800 awaiting December’s manufacturing PMI and hardly encouraged by NZ PM Ardern stating that COVID restrictions will be tightened to code red if there is a community transmission of Omicron, albeit not full lockdown mode.

DXY

Although US Treasuries are waning and broad risk sentiment is wavering, the Dollar and index continue to consolidate off recent peaks amidst ongoing strength or revivals in rival currencies on independent and indirect factors, like strong inflation data and gains in underlying commodity prices, chiefly oil, but also industrial and precious metals. Hence, the DXY is trying to find a base around 95.500 between 95.417-603 parameters ahead of IJC, the Philly Fed and existing home sales before details of next week’s supply remit and Usd 16 bn 10 year TIPS issuance.

CAD/GBP/CHF/JPY/EUR    

All taking advantage of the Greenback retreat, as the Loonie pivots 1.2500, Sterling maintains grasp of the 1.3600 handle awaiting more UK political sparks to fly, the Franc sticks within a narrow range around 0.9150, the Yen retains a safety premium in the lower half of 114.00-115.00 extremes post-Japanese trade data showing a narrower than consensus trade deficit due to stronger exports and the Eur plants firmer roots either side of 1.1350 pre-ECB minutes. Note also, Eur/Usd is embroiled in heavy option expiry interest starting from 1.1300-10 in (3.4 bn and extending through 1.1315-25 in 1.04 bn to 1.1345-50 where 1.73 bn rolls off at the NY cut.

SCANDI/EM

It’s three down and one to go in terms of Thursday’s Central Bank policy meeting schedule and the PBoC kicked off proceedings with cuts to China’s LPRs of 10 bp for the 1 year rate and 5 bp for 5 years. However, the Yuan remains upwardly mobile after the strongest Cny midpoint fix since May 2018, in contrast to the Norwegian Krona that is flat to marginally softer following ‘confirmation’ from the Norges Bank that the next hike is likely to come in March based on latest assessments of the outlook and balance of risks. Elsewhere, the BI stood pat as widely anticipated, and next up the CBRT is also seen on hold after the Bank exhausted its margins of easing last time and is still facing an uphill battle to get runaway Turkish inflation back on track given constraints from President Erdogan who wants interest rates to fall further.

20 Jan 2022 - 09:53- Fixed IncomeData- Source: Newsquawk