EUROPEAN FX UPDATE: Buck braces for FOMC, while Kiwi retraces on GDP grounds

Analysis details (10:42)

DXY

Tuesday’s tamer than anticipated US inflation data left a lasting if not indelible mark on the Greenback as the clock ticked down to the culmination of December’s FOMC meeting and expectations of a smaller 50 bp hike solidified alongside a slightly lower terminal rate towards the lower end of a 4.75-5% range. As such, the index remained toppy around its new, lower 104.000 handle, albeit off worst post-CPI levels between 104.130-103.660 parameters, with only import/export prices to go before the Fed delivers its final policy decision, SEP and press briefing of the year.

NZD/AUD   

The tide turned down under when Aud/Nzd rebounded firmly from just below 1.0600 towards 1.0650 in response to a bleak outlook for the NZ economy and contraction for three consecutive quarters in 2023. The Kiwi also retreated further against its US rival to sub-0.6450 at one stage awaiting actual GDP metrics for Q3, while the Aussie reclaimed the bulk of its gains vs the Buck in advance of the latest labour market report within a band spanning 0.6850. Note, unusually large Nzd/Usd option expires may keep the pair propped into the NY cut as 1.02 bn and 1.15 bn roll off at the 0.6425 and  0.6400 strikes respectively.

JPY/EUR/GBP/CHF    

All maintaining degrees of upside momentum against their US peer, with the Yen overcoming some very mixed Japanese macro releases overnight to eclipse yesterday’s peak in knee-jerk reaction to a seemingly hawkish BoJ piece (flagging a potential review next year), and the Euro also climbing on the back of an ECB sources story indicating that the next set of forecasts due tomorrow will show CPI some distance above target in 2024 and a tad over the year after. Usd/Jpy reversed from 135.73 to circa 134.56 briefly and Eur/Usd bounced from around 1.0619 to 1.0669. Elsewhere, Sterling was slightly depressed following softer than consensus UK CPI metrics, but Cable regrouped from a trough just beneath 1.2350 to probe 1.2400 again and the Franc was hardly hampered by a slowdown in Swiss producer/import prices nearer 0.9261 than 0.9298.

CAD/SEK/NOK

The Loonie continued to lag as WTI waned on bearish private crude inventory vibes and the Swedish Crown slipped even though CPI and CPIF readings broadly chimed with expectations, but the Norwegian Krona retained an underlying bid on the eve of the Norges Bank. Usd/Cad pivoted decent option expiry interest at 1.3560 (1.1 bn), Eur/Sek touched 10.8850 and Eur/Nok straddled 10.3800.

EM

No adverse reaction to marginal SA inflation data misses as the Zar sustained politically-inspired recovery gains, while the Cny and Cnh were encouraged by reports that China has decided against postponing its key economic policy meeting, and it will take place between December 15/16.

14 Dec 2022 - 10:42- Fixed IncomeData- Source: Newsquawk