EUROPEAN FX UPDATE: Greenback underpinned amidst renewed Yuan angst

Analysis details (10:29)

DXY/CNY-CNH/JPY/CHF

The Dollar retained an underlying bid in wake of Fed rhetoric underlining that inflation remains too high, and including a particularly hawkish outlook from current FOMC voter Bowman who believes that further hikes plural rather than one are likely appropriate. However, the Buck also benefited from a retreat in the Yuan on the back of Evergrande woe plus ongoing weakness in the Yen and Franc on policy divergence dynamics following the SNB’s decision to defy consensus and stand pat on rates and the BoJ sticking to its ultra-easy stance last week. The DXY bounced firmly towards Friday’s 105.780 post-EU PMI peak within a 105.510-760 range and may also have taken note of Barclays month end rebalancing model flagging a strong Greenback buying signal against all G10 rivals, not to mention the fact IMM spec positions turned from net short to long according to CFTC data covering September 13 through 19. Back to China and Evergrande cancelled its creditor meeting set for early this week and is scrapping its Usd 35 bn debt restructuring plan, noting that it is necessary to re-assess the terms of the proposed restructuring and is unable to issue new debt under the present circumstances citing an investigation into its subsidiary Hengda Real Estate. Meanwhile in Japan, BoJ Governor Ueda reiterated that the Bank must patiently maintain monetary easing as the economy is recovering moderately and Deputy Governor Uchida echoed his boss, albeit adding that currency market moves must be watched closely before adding that the BoJ is not in a situation where achievement of 2% inflation is in sight. Usd/Cny and Usd/Cnh climbed above 7.3100 and 7.3150 respectively from around 7.3000 and sub-7.2950 irrespective of another heavy steer from the PBoC’s midpoint fix, Usd/Jpy inched up from 148.26 to 148.57 and Usd/Chf topped 0.9100 from 0.9064 as Swiss sight deposits rose again.

AUD/NZD    

No real surprise that the Aussie suffered contagion with the Yuan, especially as Australia’s Council of Financial Regulators highlighted that a sharp slowdown in China, were it to materialise, would principally transmit to Australia through trade channels and an increase in risk aversion in global financial markets. Moreover, iron ore came under pressure and broad risk sentiment soured, while the spec accounts increased their oversold Aud base to the highest level on record. Hence, Aud/Usd fell from 0.6446 to 0.6414 and the Aud/Nzd cross lost traction above 1.0800 to keep Nzd/Usd in sight of 0.5950.

CAD/GBP/EUR   

The Loonie managed to stay afloat of 1.3500 vs its US peer as WTI oil held above Usd 90/brl, but Sterling slipped to a new multi-month low and looked increasingly prone on the 1.2200 handle in Cable terms and the Euro faded above 1.0650 against its US counterpart even though German Ifo survey metrics either beat or matched expectations. Instead, Eur/Usd seemed more inclined to remarks from ECB’s Villeroy and de Cos backing the rates have peaked scenario.

EM   

Little respite for the Try as Turkish manufacturing confidence dipped and the CBRT Governor refrained from providing details or colour after expressing a determination to increase international demand for Lira assets. Elsewhere, the Huf lagged around 390.00 vs the Eur in the face of a slowdown of Hungarian gross wages, but was mainly on the front foot between 4.5870-4.6065 parameters as Polish unemployment was in line with consensus.

25 Sep 2023 - 10:29- Fixed IncomeData- Source: Newsquawk