EUROPEAN FX UPDATE: Euro relieved by risk revival, while Aussie regresses

Analysis details (10:20)

EUR/AUD

It may be far too premature to make any rash judgement calls or even suggest that a turnaround Tuesday is in the offing, but a role reversal is underway as the Euro stages another recovery rally and the Aussie unwinds more of its recent commodity-related gains. Eur/Usd is testing resistance and offers around 1.0900 again having bounced from a firmer base near 1.0850 vs yesterday’s circa 1.0806 low, while Eur/Gbp has breached 0.8300 after getting even closer to 0.8200 at one stage on Monday. Broad risk sentiment has improved after some progress in peace talks between Russia and Ukraine yesterday that has culminated in the passage of civilians down humanitarian corridors, while the Euro also got an unexpected boost via reports that the EU is planning huge joint bond issuance to pay for energy related costs and increased defence spending. Conversely, a correction in certain industrial metal prices, bar nickel that has now been suspended on the LME following its surge, and stagflation fears have resulted in Aud/Usd recoiling further from best levels to sub-0.7300 irrespective of an upbeat NAB business survey overnight.

DXY/XAU

Although the overall market mood is considerably less gloomy than it has been of late, it is perhaps telling that the Dollar index and Gold as another standard benchmark of temperament are both solidly underpinned either side of psychological round numbers, at 99.000 and Usd 2000/oz respectively. Hence, there are plenty of investors and speculators keeping an underlying base position and long hedge in the Greenback and bullion for geopolitical and inflation insurance it seems.

JPY/CHF

The Yen and Franc are flagging on risk and yield dynamics, while the former also has to contend with a much wider than forecast Japanese current deficit knowing full well that the cost of imported oil and commodities has ramped even more since January. Thus, Usd/Jpy is struggling to contain declines through 115.50 and Usd/Chf is closer to 0.9300 than 0.9250 let alone 0.9200.

NZD/GBP/CAD

All choppy and prone to outside influences as much as specifics or independent factors, but the Kiwi has gleaned traction upgrading its RBNZ outlook to a 3.5% peak in the OCR by April next year from 3% previously and to include back-to-back 50 bp hikes in April and May. Nzd/Usd is holding above 0.6800, while the Pound had reclaimed 1.1300+ status following a stop-driven decline below with some assistance from the Euro as Eur/Gbp fades from 0.8325 to probe 0.8300. Elsewhere, oil is still cushioning the Loonie to an extent as WTI rebounds over Usd 120/brl and Usd/Cad is capped under 1.2850 ahead of Canadian trade data.

SCANDI/EM

The upturn in risk appetite rather than more relaxed commentary about the state of Swedish inflation from Riksbank’s Jansson is keeping the Sek afloat, while the Nok continues to rely on Brent to the extent that weaker than expected Norwegian GDP has not adversely impacted. Meanwhile, a firmer PBoC midpoint fix has helped the Cny and Cnh hold around 6.3200, the Rub has regained some poise and Zar has taken in line SA GDP in stride along with latest load shedding by Eskom.

08 Mar 2022 - 10:20- Fixed IncomeData- Source: newsquawk