EUROPEAN FX UPDATE: Dollar relatively resilient in face of Renminbi and risk revival

Analysis details (10:25)

DXY

The Greenback is mixed vs major rivals, but holding up quite well all things considered with the index anchored around 103.000 and containing declines to 102.780 vs Thursday’s 102.650 low, irrespective of some contraction in US Treasury yield differentials at the longer end of the yield curve and another improvement in sentiment prompted by PBoC easing overnight. Moreover, the Buck has resisted or absorbed pressure from a resurgent Yuan that has been directing, if not dictating moves in several G10 currencies such as the Aussie, Euro and Yen, while thwarting the latest UK data related Pound rebound, perhaps with some traction via hawkish commentary from a normally dovish-leaning official in Kashkari. To recap, he sees some evidence of a longer-term high inflation regime, and if so, the FOMC may need to be more aggressive.

NZD/CAD/AUD   

A recovery in commodity prices, including crude, and pre-positioning ahead of a widely expected 50 bp RBNZ hike next week may be keeping the Kiwi elevated and ahead of its G10 peers, but Nzd/Usd could also be propped towards the top of a 0.6413-0.6364 range due to Aud/Nzd cross tailwinds as the Aussie awaits the outcome of what appears to be a tight election race given latest polls. However, Aud/Usd has advanced beyond 0.7050 with some impetus from the aforementioned Cnh/Cny retracements through 6.7000 to best levels since early May. Elsewhere, the Loonie is straddling 1.2800 against its US counterpart, eyeing WTI and other risk assets in the absence of anything specific.

GBP/CHF/EUR/JPY

As alluded to above, Sterling has been somewhat stymied in wake of surprisingly strong retail sales as 1.2500 vs the Dollar is providing more of a psychological challenge than it did yesterday, but on the flip-side 0.8500 has capped Eur/Gbp as the Euro fails to retest 1.0600 against the Greenback regardless of another ECB member talking up the prospect of shifting from NIRP to ZIRP and then into positive territory (Visco this time). Conversely, the SNB and BoJ are sticking to negative rate stances, so risk and rate developments remain key drivers, with the Franc back below 0.9700 and Yen under 128.00 again vs the Buck respectively, and latter hardly responding to Japanese inflation metrics independently (headline and core CPI both above target, but in line with forecast).

SCANDI/EM

Not much leverage for the Nok following the Norges Bank household inflation expectations survey even though 1 year and 2-3 year estimates rose markedly, and the lack of meaningful traction is probably due to the fact that the next 25 bp tightening move has already been well flagged for June. Similarly, the Try largely shrugged off an uptick in Turkish consumer confidence and swooned again after President Erdogan’s no to Swedish and Finnish NATO membership on Thursday.

20 May 2022 - 10:25- Fixed IncomeBank Speaker- Source: newsquawk