EUROPEAN FX UPDATE: Greenback fades markedly following OPEC-plus pop

Analysis details (10:31)

DXY

A rather crude awakening and start to April for markets as several OPEC+ oil producers preempted the scheduled JMMC meeting and decided to announce voluntary output cuts totalling around 1.15 mn bpd (1.65 mn including the 0.5 mn reduction from Russia already in the pipeline) with effect from next month through to the end of 2023. Crude benchmarks spiked accordingly, with WTI and Brent reaching Usd 81.69 and Usd 86.44 respectively, while the Dollar also rebounded further amidst higher US Treasury yields and marginally more hawkish Fed policy perceptions. However, the index waned after topping 103.000 by a very slender margin and drifted all the way back down to probe Friday’s session best within a 103.060-102.570 range to the benefit of its peers, and the petro currencies in particular for obvious reasons.

AUD/CAD/NOK/MXN

The Aussie found some semi-psychological support just ahead of 0.6650 vs its US peer and also got protection from a downturn in the Yuan on the back of a weaker than forecast Chinese Caixin manufacturing PMI via a firm bounce in the Aud/Nzd cross on the eve of the RBA as Aud/Usd peered over 0.6700 again. However, views remained highly divided on the outcome between a final 25 bp hike or pause, and this was evident in options given a 46 pip break even per implied volatility or the straddle premium. Conversely, the BoC confirmed its conditional pause last month, leaving the Loonie more inclined to track crude and other commodities as it climbed from circa 1.3536 through 1.3500 ahead of Canada’s manufacturing PMI, while the Norwegian Crown was boosted by Brent on the way from close to 11.3200 vs the Euro towards 11.2600, and the Mexican Peso rode WTI’s wave to probe 18.0000 against its US counterpart.

JPY 

At the opposite end of the major/G10 spectrum, the Yen continued to underperform, with no help from a largely downbeat Japanese Tankan survey or the higher cost of imported oil, though Usd/Jpy did stall at 133.75 (peak from March 17) and into the 100 DMA (at 133.82 today).

EUR/GBP/CHF/NZD  

Another retreat in EGBs rather than somewhat mixed Eurozone PMIs gave the Euro a bit more incentive to reclaim lost ground against the Buck, as Eur/Usd got to within a single pip of 1.0850 from a sub-1.0800 base, but Sterling was more reliant on its US rival’s reversal given a downward tweak to the final UK manufacturing PMI and declines in Citi/YouGov inflation expectations. Cable regained 1.2300+ status, while the Franc managed to keep its head just above 0.9200 in wake of softer than consensus Swiss CPI metrics and a more contractionary than anticipated manufacturing PMI and the Kiwi retained grasp of the 0.6200 handle in advance of the RBNZ on Wednesday and after the NZIER Shadow Board recommended the Bank to hike the OCR by 25 bp, in line with the majority view.

SEK/EM

Little joy for the Sek as Sweden’s manufacturing PMI slid further below the 50.0 threshold, while the Cnh and Cny were undermined by the aforementioned Caixin survey missing consensus plus the PBoC withdrawing liquidity, and the Try could not glean any joy from another slowdown in Turkish CPI and PPI or an uptick in the manufacturing PMI given the jump in crude.

03 Apr 2023 - 10:31- Fixed IncomeData- Source: Newsquawk