EUROPEAN FX UPDATE: BoJ knocks Yen off safe haven pedestal

Analysis details (10:26)

JPY/DXY

In stark contrast to the SNB yesterday, no shift out of ultra-easy mode from the BoJ whatsoever, and in fact more pronounced dovish guidance via Governor Kuroda in the post-policy meeting press conference along with additional measures aimed at capping the 10 year JGB yield, including an offer to buy CTD bonds for an extended period starting from next Monday. Moreover, Kuroda stressed that raising the upper limit for the benchmark from 25 bp could result in even higher yields and diminish the impact of monetary easing. In response, the Yen reversed more sharply from around 131.49 vs the Buck on Thursday towards 134.90, and the spin-off helped the Dollar index secure a firmer footing above 104.00 between 104.540-103.830 parameters after its collapse from 105.500 to 103.410 yesterday. 

AUD/NZD

The Aussie and Kiwi are both making way for the Greenback revival, with the former also wary about reports in the FT that Australia has invoked measures to give authorities the power to prevent coal exports if needed in an attempt to avert the risk of blackouts, while the latter is gleaning some traction from a rise in NZ’s manufacturing PMI plus ANZ Bank revising its RBNZ forecasts to 50 bp OCR hikes in July and August. Aud/Usd is hovering around 0.7000 and Nzd/Usd is straddling 0.6350 with the Aud/Nzd cross towards the base of a 1.1040-88 range.

CHF/CAD/GBP/EUR

All narrowly mixed against their US counterpart and definitely more contained in comparison to the extremes seen during Thursday’s wild white knuckle ride. Nevertheless, the Franc retains the upper hand and pole position following another probe through 0.9650 and spike vs the Yen to four+ decade peaks on SNB-BoJ divergence, while the Loonie continues to lag after its crude and risk-related slide to almost 1.3000, Sterling has lost more momentum after a fleeting 1.2400+ pop and the Euro is trying to keep hold of the 1.0500 handle having met resistance on the round number above. Note, decent option expiry interest from 1.0500-1.0495 (1.13 bn) may underpin Eur/Usd alongside hawkish vibes from ECB’s Knot  on the prospect of several half point hikes in the event that inflation worsens.

SCANDI/EM

Some respite for the Sek and Nok on a partial improvement in sentiment, and this is also helping several EM currencies regain a bit of composure after Thursday’s rout. However, the Try is being hampered by the latest CBRT survey showing higher CPI forecasts and a weaker Lira, while the Cnh and Cny tread cautiously ahead of Monday’s LPR decisions from the PBoC.

17 Jun 2022 - 10:25- Fixed IncomeEconomic Commentary- Source: Newsquawk