EUROPEAN FX UPDATE: Buck relatively resilient in face of resurgent Aussie and Yuan

Analysis details (10:05)

DXY/GBP/EUR/JPY

The Dollar and index retreated a bit further from midweek peaks, but the latter found underlying bids and some psychological support just above the 100.000 mark amidst ongoing underperformance in the Pound post-cooler than forecast UK inflation data. However, the Greenback in general was capped by a data-related revival in the Aussie and a Yuan recovery inspired by multiple forms of intervention. Moreover, the Euro was underpinned by a firmer rebound in EGB yields and decent option expiry interest at the 1.1200 strike (1 bn), while the Yen clawed back more losses with the aid of Japanese exporter demand and big option barriers (3.7 bn expiries rolling off between 140.00-10), irrespective of mixed trade data and contrasting Government economic projections. Cable remained top-heavy within a 1.2964-06 range, Eur/Usd was elevated between 1.1198-28 parameters and Usd/Jpy was capped around 139.70 compared to a circa 139.12 low, as the DXY traded sideways from 100.010 to 100.310 ahead of initial claims, the Philly Fed and existing home sales.

AUD/CNY-CNH

As noted above, the Aussie got a boost overnight when the latest labour market report exceeded expectations on the employment front and nudged the jobless rate down to rekindle RBA rate hike prospects, while the Yuan rebounded with the aid of a much stronger than anticipated PBoC midpoint fix, reports of Chinese state bank buying, a relaxation of the rules to allow companies to borrow more overseas by raising macro prudential assessments to 1.5 from 1.25, and speculation about mortgage easing to spur buying in China’s large cities. Aud/Usd bounced strongly from 0.6766 to 0.6840 at best and through hefty option expiries at 0.6800-15 (2 bn to be precise), Usd/Cny reversed from 7.1885 towards 7.1700 and Usd/Cnh from 7.2325 to 7.1750 before firming up again.  

NZD/CAD

The Kiwi and Loonie also regained momentum against their US rival on China stimulus grounds, with Nzd/Usd probing 0.6300 compared to a 0.6255 trough, albeit not quite reaching 1.2 bn option expiry interest at 0.6310, and Usd/Cad pulling back to 1.3125 from 1.3168.

CHF

A narrower Swiss trade surplus may have hampered the Franc, but weaker US Treasuries were probably more influential as Usd/Chf meandered between 0.8562-90 confines.

SCANDI/EM

The Nok continued to glean traction from buoyant oil, while the Sek was more rangy eyeing broad risk sentiment, the Try lagged ahead of the CBRT and was hardly helped by a deterioration in Turkish consumer morale, and the Zar derived impetus from solid Gold awaiting the SARB in stark contrast.

20 Jul 2023 - 10:05- Fixed IncomeResearch Sheet- Source: Newsquawk