EUROPEAN FX UPDATE: Aussie elevated on inflated RBA rate expectations

Analysis details (10:21)

AUD/NZD

Firmer than forecast NZ CPI data only gave the Kiwi a short-lived fillip and enough thrust to peer over 0.6500 vs its US peer as the y/y rate came in below the RBNZ’s estimate and did little to alter expectations for a 50 bp hike at the next policy meeting. However, RBA pricing turned decidedly more hawkish in response to much hotter than anticipated Aussie inflation metrics across the board and Aud/Usd duly vaulted a Fib retracement level and 0.7100 on the way up to circa 0.7122 before waning, while the Aud/Nzd cross rebounded strongly from sub-1.0850 to around 1.0963.

DXY

Notwithstanding all the antics down under, plus another lurch lower in US Treasury and other global bond yields, the Dollar remained relatively steady overall and the index in close proximity to the 102.000 level that has become pivotal following several consecutive ‘closes’ nearby and adjacent to a Fib just below the round number. The Buck has veered either side, largely due to external factors, but could derive more independent impetus via a raft of macro releases tomorrow and PCE on Friday given its prominence as a price gauge in the eyes of the Fed. For now, the DXY appears content to continue meandering from 101.770 to 102.120.

JPY/CAD/EUR

The Yen settled down after Tuesday’s wild ride and did not react too badly to Japan downgrading its overall economic view in January, for the  first time in 11 months, with the outlook for exports and imports cut for the first time since November 2021 and October last year respectively. In fact, Usd/Jpy had another look at the strength of psychological support through 130.00 ahead of the latest BoJ SOO and with a Government official citing Governor Kuroda in reaffirming guidance to resolutely keep the monetary environment easy and regain market functionality by tweaking YCC operations. Elsewhere, the Loonie held fire for the BoC within narrow 1.3380-44 confines to see whether the Bank delivers a 25 bp hike to sign off its tightening phase and the Euro was caught between contrasting Ifo survey readings and renewed strength in EGBs. Eur/Usd popped back above 1.0900 before fading, but held off yesterday’s lows sub-1.0850 as the German Economy Ministry confirmed its upward revision to 2023 GDP.  Back to Usd/Cad, and the stakes are pretty high for the BoC as the break even on option straddles rose to 81 pips for the event.

CHF/GBP

A modest improvement in Swiss investor sentiment hardly impacted the Franc as it hovered beneath 0.9200 vs the Greenback and pivoted 1.0050 against the Euro, but Sterling struggled to stay afloat of or in touch with 1.2300 vs its US counterpart and contain declines around 0.8850 against the Euro given a sharp drop in Gilt yields and pare back in BoE pricing, perhaps in part recognition of soft UK PPI data.

SCANDI/EM

Conversely, the Sek seemed to shrug off mixed Swedish PPI prints and Nordea revising its Riksbank outlook to add another ¼ point hike in April as it weakened with a downturn in risk sentiment, but the Thb was propped by the BoT’s 25 bp hike and guidance for further tightening and the Try gleaned some traction from an improvement in Turkish manufacturing confidence.

25 Jan 2023 - 10:20- Fixed IncomeData- Source: Newsquawk