EUROPEAN FX UPDATE: Aussie flounders again and Euro flanked by expiries

Analysis details (10:19)

AUD/NZD

The Aussie came under renewed pressure as base metals, including iron ore and copper, continued to crumble, while the Yuan lost more ground against the Buck and Aud/Usd fell in sympathy on ANZAC Day, partly due to holiday-thinned volumes. However, a further decline in the Aud/Nzd cross through 1.0850 highlighted ongoing Aussie underperformance and perhaps an element of caution ahead of Wednesday’s Q1 CPI and RBA weighted inflation data, with Aud/Usd down towards 0.6650 from just over 0.6700 at best. Nevertheless, Nzd/Usd also lost momentum between 0.6187-51 parameters awaiting NZ trade for some independent direction.

DXY/CAD/GBP/EUR     

Having extended its from post-US PMI peaks overnight, the Buck found its feet or some traction at least, as the Dollar index held above 101.000 before bouncing to 101.510 amidst Loonie depreciation beyond technical levels within a 1.3525-89 range, the Pound’s failure to maintain 1.2500+ status and the Euro’s fade ahead of recent highs spanning 1.1068-76. Note, Eur/Usd also faced hefty option expiry interest on any breach given 2.2 bn rolling off at the 1.1100 strike and was drawn to 2 bn between 1.1060-50 as much as 1.1 bn at 1.1000 provided a degree of support.

CHF/JPY

The Franc remained bid across the board on a combination of risk, rates and reserve dynamics, with Usd/Chf capped beneath 0.8900 and Eur/Chf probing 0.9800 to the downside, while the Yen regrouped against the backdrop of softer US Treasury yields and a flatter curve as Usd/Jpy reversed from circa 134.47 to test importer and other bids around 134.00, irrespective of more dovish guidance from BoJ Governor Ueda. On that note, he said the Bank thinks it is appropriate to maintain YCC and easy monetary policy given the current economic, price and financial developments, while he also said that Japan's bond yield curve is currently smooth as a whole. Ueda added that tightening now could push down inflation in the future which is already likely to slow on the dissipating effect of import costs and noted that if they see the risk of runaway inflation, they must normalise monetary policy but added that the undershooting forecasts is bigger than overshooting, which is why the BoJ must maintain easy policy for now.

SCANDI/EM

Somewhat mixed Swedish PPI metrics due to base effects were largely shrugged off as the Sek looked ahead to the Riksbank rate decision tomorrow when a 50 bp hike is widely anticipated. Meanwhile, the Cny and Cnh weakened further regardless of another generous PBoC liquidity provision and reports that China's Politburo is likely to shift focus from stimulus to reforms when top leaders meet, possibly this week, as the economic recovery is well on track, with 200 DMAs vs the Usd next in sight. Elsewhere, the Krw took note of a SK FX official saying expanded volatility in the exchange rate is undesirable and the Huf was defensive pre-NBH after Deputy Governor Viraj alluded to an adjustment of the rate corridor. 

25 Apr 2023 - 10:19- Fixed IncomeData- Source: Newsquawk