EUROPEAN FX UPDATE: Greenback mixed vs G10 peers, but underpinned

Analysis details (10:03)

DXY/JPY/CAD

The Dollar got a firmer safe-haven boost amidst a tech-led slide in US stocks yesterday and extended overnight recovery gains into the EU midweek session when the index reached 105.820 to register its highest level since the start of the month. Latest DXY gains were plundered at the expense of the Yen in particular on yield and Fed/BoJ policy differentials as Nakamura echoed Governor Kuroda on the need to patiently maintain monetary easing given that Japan's economy is still in the midst of recovering from the pandemic induced slump, and current prices rises are not accompanied by wage increases. Usd/Jpy rebounded towards 138.00 from sub-137.00, while the Loonie continued to be weighed down by crude oil after bleak Chinese trade data darkened the brighter mood emerging on the Covid front, and Usd/Cad looked more likely to probe 1.3700 than arouse 1.27 bn option expiry interest at the round number below before the BoC. On that note, rate expectations remained fairly evenly split between a 50 bp or 25 bp hike and highlighted by a rise in Usd/Cad implied volatility with the break-even rising to 91 pips from 66 pips for the looming event (full preview available in the Research Suite).

EUR/NZD

Marginal major outperformers, but not necessarily due to Eurozone, NZ, Euro or Kiwi specifics as Eur/Usd hovered below 1.0500 and Nzd/Usd consolidated on the 0.6300 handle amidst favourable cross flows. Eur/Gbp rebounded through 0.8600 following its reversal around Tuesday’s late London fix and Aud/Nzd retreated from just over 1.0600 in wake of weaker than forecast Aussie Q3 GDP readings overnight.

AUD/CHF/GBP

The Aussie unwound more of its RBA-inspired upside momentum vs the Buck on the back of the aforementioned data miss and lost 0.6700+ in the process, while the Franc reversed further beneath 0.9400 after another hefty fall in Swiss FX reserves and the Pound recoiled from just over 1.2150 to the low 1.2100 zone.

SCANDI/EM

More downside for the Nok as Brent tumbled under Usd 78/brl and a slowdown in Norwegian manufacturing output offset a wider current account surplus, while the Sek only derived limited traction from Swedish GDP defying consensus for a contraction and expanding instead. Elsewhere, the Mxn sagged with WTI and Zar took on board a higher level of SA load-shedding by Eskom, the Pln pivoted 6.9500 against the Eur ahead of the NBP, the Cny and Cnh held above 7.0000 vs the Usd and the Brl will take cues from the BCB that is seen maintaining the Selic rate, but with outside calls for the COPOM to hike 25 bp.

07 Dec 2022 - 10:03- ForexEconomic Commentary- Source: Newsquawk