EUROPEAN FX UPDATE: DXY subdued as high-betas lead the gains and the JPY sits as the laggard

Analysis details (09:41)

AUD, NZD, CAD, GBP

Activity currencies are on the front foot at the start of the new month and quarter, but more so on idiosyncratic factors as opposed to broader risk appetite. The antipodeans lead the gains this morning as traders look ahead to 50bps hikes by both the RBA (Tue) and RBNZ (Wed) with AUD/USD finding overnight support around 0.6400 and its Kiwi counterpart printing an intraday base just under 0.5600 before rebounding, whilst the AUD/NZD cross resides around 1.1400 after matching Friday’s high around 1.1440. The Loonie benefits from a gap higher in crude oil prices as reports suggested OPEC+ are leaning towards a larger cut than telegraphed last week – USD/CAD topped out at 1.3825 (vs Friday’s 1.3838 peak) and has declined under the 1.3800 mark towards 1.3750. Sterling saw a boost in the early hours as reports circulated that the UK would ditch plans to abolish the 45p top tax rate (later confirmed by the Chancellor) – a policy U-turn that eases some friction within the UK Conservative Party and with the broader UK public. GBP/USD rose to a high of 1.1279 (at the time of writing) ahead of its 21 DMA (1.1294) and paring back the entirety of the post-budget decline, whilst EUR/GBP briefly dipped under its 21 DMA (0.8755) from a 0.8830 peak. 

DXY, EUR

The Dollar index has been in the red amid the gains in G10 peers mentioned above, with DXY meandering on either side of 112.00 having printed a current intraday band between 111.73-112.35. On the docket, participants are looking ahead to the US ISM Manufacturing PMIs later today, whilst readying for a slew of Fed speakers this week before the release of the US Labor Market report on Friday. Analysts at ING expect “for a solid 200k increase in jobs and the unemployment rate staying low at 3.7% - both pointing to another 75bp hike from the Federal Reserve on 2 November.” Elsewhere, the single currency is relatively flat against the Dollar with upside capped by revisions lower to the EZ manufacturing PMIs, with the commentary in the release suggesting “The downturn [in EZ manufacturing] is being driven primarily by the surging cost of living, which is reducing spending power and hitting demand, but soaring energy prices are also increasingly limiting production at energy-intensive manufacturers.", whilst adding that the “worst looks set to come”. EUR/USD trades on either side of 0.9800 and within Friday’s 0.9733-9853 range.

JPY, CHF

The JPY sits as the current laggard following some interesting price action overnight. The JPY weakened in holiday-thinned APAC conditions despite a lack of drivers at the time, with USD/JPY mounting 145.00 and hitting a 145.33 peak before experiencing a sharp pullback to levels under 145.00 in short order – with no reports of intervention seen overnight. Before that, Japan saw the release of the BoJ Summary of Opinions (SOO) which stated that Japan's core consumer inflation is likely to accelerate towards the year-end but stressed the Bank should maintain monetary easing, whilst the Q3 Tankan Survey showed that Japanese manufacturer' business mood deteriorated whilst corporate inflation expectations hit a record high. Elsewhere, the CHF is relatively uneventful whilst SNB’s Jordan over the weekend reiterated that the CHF is not highly valued despite its nominal rise.

CNH, BRL, TRY

The offshore Yuan has been trading towards the top end of a 7.1204-7.1562 range as the PBoC omitted from setting a CNY fixing overnight amid the Golden Week holiday which is poised to end on the 7th of October. TRY remains near record lows vs the USD – Turkish CPI metrics printed lower than expected (83.45% vs exp. 84.63%), although the PPI printed at an eye-watering 151.50% (vs prev. 143.75%). Further, the Turkish currency sees headwinds after S&P lowers Turkey’s rating to B from B+; outlook stable. Finally, the Brazilian Real looks ahead to the open after Brazil's electoral authority confirmed that the presidential election will go to a second-round runoff between Bolsonaro and Lula after none of the candidates achieved the 50% threshold although former President Lula received 48.2% and incumbent Bolsonaro received 43.4%, according to BBC.

03 Oct 2022 - 09:45- Research Sheet- Source: Newsquawk