EUROPEAN FX UPDATE: DXY on either side of 109.00, Yuan bounces and CHF outperforms

Analysis details (10:16)

DXY, Yuan

The index has been coming off its 109.13 APAC high in early European hours before hitting a new intraday low of 108.75 on sources reports (via Bloomberg) that Russia is said to be mulling as much as USD 70bln in "friendly" currencies to slow the RUB surge "before shifting to a longer-term strategy of selling its holdings of the Chinese currency." In an immediate reaction to this USD/CNH fell from 6.9100 to 6.8860, before stabilising around mid-range. As a consequence of this Yuan appreciation, the DXY sank to a new session low. DXY sits around the middle of today’s range with the 10 DMA at 108.65, whilst yesterday’s range was clocked in between 108.37-109.20, with the current YTD peak at 109.48. Ahead for the Buck, the US ISM Manufacturing PMI and weekly IJC will likely not materially impact Fed pricing in the run-up to the US jobs report tomorrow. Back to the Yuan, China has seen several notable updates overnight and in the European morning: 1) Another firm PBoC fixing was overlooked (6.8821 vs exp. 6.9810). 2) Chinese Caixin Manufacturing PMI unexpectedly fell into contractionary territory. 3) China locked down its Chengdu city of 21mln people, and 4) Taiwan reportedly downed a civilian drone near Kinmen after the usual protocol to repel the drone failed to achieve the goal. USD/CNH trades in the middle of a 6.8872-9203 range.

EUR, GBP AUD, NZD, JPY

All softer vs Buck to similar magnitudes and largely moving in tandem with Dollar action. EUR and GBP were not impacted by mixed Final Manufacturing PMIs with the releases echoing the themes from the Flash release. EUR/USD declined from a 1.0055 high back towards parity, whilst GBP/USD dipped from a 1.1625 peak to a 1.1569 low. AUD/USD fell to a 0.6793 trough (vs 0.6847 high) in the aftermath of the unexpected Chinese PMI contraction, and NZD/USD dipped in tandem to a 0.6077 low (vs 0.6131 high). USD/JPY rose to a fresh 24yr high of 139.67 overnight amid rate differentials between Japan and US but then pared back in the European morning as DXY pulled back and the risk tone remained sour. USD/JPY sits towards the bottom of a 138.94-139.67 range.

CAD, CHF

The G10 current outliers with the CAD bearing the brunt of another leg lower in crude prices, with USD/CAD testing levels near 1.3200 to the upside as it remains towards the top end of a 1.3123-94 intraday band. Conversely, the Swissy outperforms in wake of a slightly firmer than expected inflation reading as the ECB-SNB pricing gap narrows. The SNB next meets in September and participants have been attentive to the possibility of intra-meeting action before then, given the inflation situation and a press release (albeit, not one generally intended to provide monetary policy insights) from them highlighting they can undertake action between meetings.

01 Sep 2022 - 10:15- Research Sheet- Source: Newsquawk