EUROPEAN FX UPDATE: Dollar caught in softer yield/weaker Yuan conundrum

Analysis details (09:57)

DXY/JPY/CNY-CNH

The Greenback retreated further from post-IJC and ULC highs after fading into Thursday’s close and succumbing to more pronounced pressure from the outerforming Yen amidst risk aversion during the APAC session overnight along with reports of Usd/Jpy long liquidation in huge size against the backdrop of rebounding USTs and more even-keeled Treasury curve. However, the Buck remained firmly underpinned on the back of ongoing Renminbi depreciation irrespective of another very heavy-handed PBoC midpoint fix for Usd/Cny, and in wake of US retaliation against China’s Iphone ban via a probe into the Chinese made Huawei chip. Usd/Cnh topped 7.3600 and set a fresh multi-month peak in the process and Usd/Cny got to within striking distance of 7.3500. This bolstered the Dollar and helped the index indirectly regain sight of 105.000 within a 104.750-105.050 range, while Usd/Jpy snapped back up from 146.60 to 147.45.

NZD/AUD

Little rhyme or reason and certainly a lack of obvious independent factors, but the Kiwi and Aussie took advantage of the Greenback’s fade to pop back over psychological levels at 0.5900 and 0.6400 respectively, albeit with Aud/Usd still lagging behind Nzd/Usd on an element of Yuan contagion.

CHF/GBP/EUR/CAD   

Also firmer against their US counterpart, or clawing back lost ground to be more accurate, as the Franc bounced between 0.8931-0.8895 parameters, Sterling recovered from 1.2467 to 1.2509 before running into offers, the Euro regained 1.0700+ status and the Loonie pared declines from 1.3689 to 1.3653. Nevertheless, more decent option expiries at the round number in Eur/Usd (1.3 bn) may hamper the pair rather than offer support as they did yesterday (for a while at least) and Usd/Cad faces top tier event risk in the form of Canada’s LFS.

SCANDI/EM

The Sek failed to glean as much encouragement as it could from a solid return to growth and industrial output in July as other more forward-looking Swedish macro releases, such as new manufacturing orders were bleak, but the Huf derived some traction from firmer than forecast headline Hungarian CPI that outweighed a softer than consensus core and narrower than expected trade surplus, and the Pln got a bit of respite from NBP’s Kotecki who claimed that the 75 bp rate cut is part of the election campaign, adding that silence descended at the MPC meeting when the proposal to ease that much was put forward, it is likely that high inflation will go on for years and the cut was risky.

08 Sep 2023 - 09:57- Research Sheet- Source: Newsquawk