EUROPEAN FX UPDATE: Dollar on a roll as risk and rates realign

Analysis details (10:32)

DXY

The Buck was gathering momentum over the course of Tuesday’s session and bulls have picked up the baton after a short-lived and shallow pull-back to push the index beyond recent highs within a 97.834-317 range. Broad sentiment is largely unchanged and regrettably the Russia-Ukraine situation has not improved, but the Greenback appears to be gleaning traction from the yield backdrop that is less dovish as US Treasuries back off from yesterday’s safe-haven peaks and the curve steepens to a degree. It’s hard to imagine anything interrupting the ongoing geopolitical vigil and focus on breaking news, but for the record today’s agenda comprises ADP as a proxy for NFP on Friday and several Fed speakers headlined by chair Powell’s semi-annual testimony to the House Financial Services Committee.

CAD

Although WTI crude has recoiled from fresh multi-year highs alongside Brent having reached Usd 111.50/brl and Usd 113.02/brl respectively, the Loonie is holding up relatively well towards the upper end of a 1.2703-45 range against its US counterpart in the run up to the BoC’s policy meeting. A 25 bp hike is fully anticipated and factored in, but the Bank may deliver hawkish guidance via a timetable for QT, while confirmation of the aforementioned tightening move would put the BoC ahead of the Fed for a while at least.

EUR

Conversely, ECB officials appear to be ratifying market perceptions and pricing for another pivot away from a rate rise this year to compound the bearish technical landscape for the Euro that is also feeling the squeeze of energy supply constraints caused by the Russian-Ukrainian conflict. Hence, Eur/Usd has tested 1.1060 in tandem with deeper losses in crosses, like Eur/Chf through 1.0200 to circa 1.0160 and Eur/Jpy sub-127.50 at one stage.

CHF/JPY

Somewhat contrasting fortunes for the Franc and Yen in relation to the Dollar as the former rebounds from lows just under 0.9200 with no real intervention from the SNB aside from the usual verbal interjections via Zurbruegg, but the latter fails to sustain gains above 115.00 on widening UST-JGB differentials and a move back up through the 50 DMA. Note also, Usd/Jpy may well be taking note of speculation that a big institutional buyer is lurking with bidding interest ahead of the 114.50 level.

AUD/NZD/GBP  

Firmer than forecast Aussie GDP and NZ import/export price data could be compounding the commodity-based impetus in Aud/Usd and Nzd/Usd as the pairs maintain strength around 0.7250 and 0.6750 respectively, but Sterling is struggling to cope with the Buck’s revival as Cable straddles 1.3300 even though Eur/Gbp has reversed course between 0.8360-21 bounds.

SCANDI/EM

Oil is still offering the Nok a cushion, understandably, but the Sek is suffering more intense contagion from the Russian invasion than the Eur, while the Rub and Try are also reeling for the same reasons.

02 Mar 2022 - 10:31- Fixed IncomeEconomic Commentary- Source: newsquawk