EUROPEAN FX UPDATE: Aussie rebound firmly in the run up to month end and RBA

Analysis details (10:30)

AUD/NZD

A solid revival in risk assets following a mostly constructive, but low volume APAC session due to Chinese New Year has given the Aussie a bit more incentive to claw back some of its recent heavy losses, with Aud/Usd probing 0.7050 and Aud/Nzd back up through 1.0700. However, both pairs may need an additional fillip via the RBA tomorrow to maintain momentum, especially as the Greenback and Kiwi have both gleaned some independent traction from hawkish Fed and RBNZ vibes. In short, Bostic believes every FOMC meeting this year is live in context of potential tightening and would not be averse to 50 bp if warranted on the grounds of inflation, while Kiwibank predicts that NZ’s OCR could reach 2.5% by November. More immediately, trade data looms for Nzd/Usd that is hovering in the high 0.6500 zone and manufacturing PMIs for the Aussie.

DXY/GBP/CAD/EUR

Notwithstanding the aforementioned Fed commentary and final rebalancing flows for January 31 that should favour the Buck given strong buy signals, the index has pulled back further from last week’s peak to test underlying buying interest and support below 97.000 within a 91.258-96.970 range. Nevertheless, Daly and George could revive its fortunes more so than Chicago’s PMI or the Dallas Fed manufacturing business index after somewhat mixed regional surveys of late. Conversely, Sterling is eyeing 1.3450 in advance of an anticipated 25 bp hike from the BoE this week and remains poised for attempts to breach 0.8300 vs the Euro even though Eur/Usd and Eur crosses are bouncing pre-ECB and post-definitive political developments in Italy and Portugal where Matarella has been reelected as President and Costa as PM respectively. The headline pair is over 1.1150, though still under a key Fib retracement at 1.1186 that chartists are looking at for direction away from fundamental factors. Elsewhere, the Loonie is straddling 1.2750 ahead of Canadian PPI and monthly GDP on Tuesday.

CHF/JPY

The major laggards, largely on sentiment grounds, but the Franc also taking on board another weekly rise in Swiss sight deposits at domestic banks, while the Yen has had to contend with softer than expected Japanese data in the form of ip and retail sales. Usd/Chf is beyond 0.9300, Eur/Chf has bounced further to scale 1.0400, Usd/Jpy is just under 115.50 and Eur/Jpy peering above 129.00.

SCANDI/EM

A dip in Norway’s credit indicator and no Norges Bank currency operations for the Government planned for February may be keeping the Nok tethered to 10.0000 vs the Eur irrespective of Brent revisiting Usd 91+/brl territory and Eur/Sek reversing through 10.5000 on the generally improved market tone. However, the Cnh is slipping in wake of underwhelming Chinese PMIs and a last liquidity shot from the PBoC for the Lunar New Year break in contrast to the firmer trend in other EM currencies, including the Try that has shrugged off a wider Turkish trade deficit and latest talk about cutting rates to bring down inflation by President Erdogan.

31 Jan 2022 - 10:28- Fixed IncomeData- Source: newsquawk