EUROPEAN FX UPDATE: China draws line in the sand to shore up Renminbi

Analysis details (09:45)

USD/CNY-CNH

Having tested the water with a firmer than spot, but close to expected midpoint fix for the onshore Yuan on Monday, the PBoC made a much more emphatic statement of intent overnight by setting the reference rate at 7.2098 vs 7.2194 forecast and high for the pair just over 7.2250. Moreover, Chinese state banks were said to be selling Usd/Cnh and given price action it would appear that 7.2500 for the offshore unit might be the tolerance limit of inflection point when devaluation becomes more harmful than helpful. Meanwhile, Premier Li also struck a more positive tone on the domestic economy that he sees growing at a faster pace in Q2 relative to Q1 and maintained that the 5% GDP target for 2023 as a whole is attainable. Usd/Cny and Usd/cnh retreated to sub-7.2100 and towards 7.2100 respectively, with the Greenback conceding ground generally in response.

AUD/NZD 

No shock that the Aussie breathed a big sigh of relief following the Renminbi revival and with some added impetus from a rebound in commodity prices, including iron ore, as Aud/Usd bounced from under 0.6700 to 0.6720 and through the 21 DMA along the way. However, the Kiwi kept pace in Aud/Nzd cross terms around a 1.0850 axis, with Nzd/Usd touching 0.6200 from a circa 0.6155 low in wake of the RBNZ’s Remit and Charter renewal post-review and minor tweak (inflation between 1-3% to be achieved and maintained rather than kept).

DXY/EUR/CAD/GBP/CHF

Aside from China’s intervention, the Buck was undermined by renewed Euro strength amidst more hawkish-leaning ECB commentary from the GC itself and so-called ‘insiders’, as Eur/Usd secured a firmer grip on the 1.0900 handle and pulled away from decent option expiry interest in two 1.3 bn clusters between 1.0895-1.0905 and 1.0910-15. The index slipped from 102.800 to 102.480 and had negative rebalancing signals to contend with via Citi’s preliminary model for month, quarter and half year end, which helped the Loonie hold mostly above 1.3150 in the run up to BoC’s Kozicki at Sintra and Canadian inflation data. Elsewhere, Cable retained 1.2700+ status irrespective of dovish remarks from BoE’s Dhingra and the Franc straddled 0.8950 in the absence of anything Swiss-centric.

JPY

More words instead of action from Japanese Finance Minister Suzuki left the Yen exposed to wider JGB/UST differentials and Usd/Jpy elevated within a 143.29-78 range and Eur/Jpy even loftier on divergent BoJ/ECB policy dynamics.

SCANDI/EM

The Sek remained pressured after softer Swedish producer prices and regardless of a narrower trade deficit as the clock continued to tick down to Thursday’s Riksbank rate call, but the Huf took a wider than consensus current account shortfall largely in stride and the Zar maintained bullish chart momentum. Conversely, the Try lurched yet again and the Rub succumbed to more fallout from the Wagner rebellion in Russia over the weekend.

27 Jun 2023 - 09:45- Fixed IncomeData- Source: Newsquawk