EUROPEAN FX UPDATE: Franc inflated, Euro underpinned and Yuan underwhelmed

Analysis details (10:04)

CHF/EUR/DXY

The Dollar and index were already unwinding more of their knee-jerk gains made on the back of Friday’s mainly better than expected US non-manufacturing ISM survey, as Treasuries extended their relatively firm rebound from cycle lows, but came under further pressure when the Franc got a boost from much stronger than forecast Swiss CPI metrics. Usd/Chf retreated towards 0.9300 from circa 0.9373 in response to headline inflation ticking up to 3.4% y/y against consensus for a slowdown to 3.1% from 3.3% previously, while Eur/Chf reversed from around 0.9966 to 0.9924 and only stalled when the Euro saw some stops triggered vs the Buck just beyond 1.0650 and the overnight Asia high. However, the DXY managed to keep sight of 104.500 within a 104.340-630 range ahead of factory orders and following commentary via Fed’s Daly and Barkin as a counter to ECB President Lagarde ramming home the message that a 50 bp hike later this month is increasingly on the cards given that underlying inflation will remain elevated in the near term. Moreover, Eur/Usd was hindered by a considerably weaker expected Eurozone Sentix index and sub-forecast retail sales, but largely shrugged off remarks from ECB's Lane as nothing really new.

CNY-CNH

It may have been partly a case of too much hype, but the Yuan was clearly left wanting and disappointed by China’s 2023 GDP target of approximately 5% compared to estimates in the 5-5.5% range and even some talk about 6%. Moreover, Usd/Cny was propped above 6.9050 and Usd/Cnh probed 6.9300 after a significant Cny 329 bn PBoC liquidity drain rather than a slightly firmer than anticipated midpoint fix for the former pairing, not to mention ongoing Chinese geopolitical and diplomatic tensions.

NZD/AUD

The Kiwi and Aussie underperformed down under, as Nzd/Usd lost grip of the 0.6200 handle and Aud/Usd suffered some Yuan contagion between 0.6769-34 parameters pre-Aussie and China trade data plus the RBA policy meeting. Note, another 25 bp hike is widely expected, but a pause cannot be ruled out given recent sub-forecast CPI, GDP and Employment reports.

CAD/JPY/GBP

All narrowly mixed against their US counterpart, as the Loonie straddled 1.3600 ahead of Canada’s Ivey PMIs, the Yen recouped more heavy losses within 136.14-135.38 extremes amidst the retracement in yields and the Pound held a tight line roughly inside 1.2050-25 confines.

SCANDI

The Sek failed to derive benefit from a record Swedish Q4 current account surplus, as it weakened in tandem with the Nok on dovish perceptions regarding an interview by Riksbank Governor Thedeen over the weekend. In short, he dismissed the notion of inter-meeting rate raises, dialled down the importance of the Krona’s role in determining monetary policy and underlined Riksbank independence from the ECB. Back to Norway where the Government downgraded its forecast for mainland growth this year markedly and also cut the 2024 GDP projection substantially.

06 Mar 2023 - 10:04- Fixed IncomeData- Source: Newsquawk