EUROPEAN FX UPDATE: Dollar deflated into Fed and funding currencies take advantage

Analysis details (10:06)

DXY/JPY/CHF  

The Buck backed off further in wake of Tuesday’s below consensus US data as Treasury yields remained soft and ongoing distress in the regional banking sector underpinned expectations that it might well be a case of one more 25 bp rate hike and done from the FOMC. Moreover, debt ceiling uncertainty continued to weigh on the Greenback as short term bill rates ramped higher on the prospect of default or no stop-gap deal before the so-called ‘X-date’ arrives. Looking at the Dollar index as a proxy, 101.500 just held within a lower sub-102.00 range peaking at 101.920, and the main beneficiaries in the basket were the Yen and Franc as the cost of carry declined. Usd/Jpy extended its marked and sharp reversal towards 135.50 from 136.62, while Usd/Chf retreated through 0.8900.

NZD/GBP/EUR

Data gave the Kiwi enough thrust  to get within a whisker of 0.6250 against its US counterpart and back over 1.0700 vs the Aussie as NZ jobs growth rose twice as much as forecast in Q1 and the unemployment rate dipped even though participation ticked up to the highest level in three decades. Elsewhere, Sterling bounced firmly from 1.2465 to top 1.2500 again and the Euro approached 1.1045 from around 1.1000, but Eur/Gbp eased back from circa 0.8830 to probe or expose a series of DMAs in close proximity (10, 50 and 21 all contained between 0.8820-09).

CAD/AUD      

No surprise that the Loonie was undermined by weakness in WTI given that the crude benchmark slumped under Usd 70/brl at one point, though Aussie losses appeared more cross-related as noted above, albeit AIG’s construction and manufacturing indices both deteriorated appreciably to outweigh marginally firmer than anticipated final retail sales. Usd/Cad hovered above 1.3600 and Aud/Usd straddled 0.6600 just a day after spiking beyond 0.6700 on the back of the RBA surprise 25 bp hike.

SCANDI/EM

The aforementioned oil spills kept the Nok and Mxn depressed, but the Try failed to benefit from the cheaper price or latest slowdowns in Turkish CPI and PPI amidst pre-election jitters. Conversely, the Cnh took advantage of the deeper Usd pullback to claw back more losses, the Myr got an unexpected boost from the BNM raising rates by 25 bp in contrast to consensus for no change and the Zar gathered technical momentum to supplement Gold building a base on the Usd 2k/oz handle.

03 May 2023 - 10:06- Fixed IncomeData- Source: Newsquawk