EUROPEAN FX UPDATE: hawkish RBNZ hike helps Kiwi fend off Buck bounce

Analysis details (10:20)

NZD/EUR

The Kiwi and Euro crossed paths on their way to opposite ends of the G10 spectrum following Tuesday’s risk averse session that weighed on the former as a high beta and commodity currency, while the latter avoided any contagion with the aid of further hawkish ECB commentary. However, the tables turned after the RBNZ matched market expectations with a back-to-back 50 bp rate increase, but lifted its OCR outlook more than anticipated  and highlighted the need to go well beyond neutral (almost 1% over by September 2023). In response, Nzd/Usd popped above 0.6500 before losing momentum as sentiment faded again, while Eur/Usd lost grip of the 1.0700 handle on a combination of Greenback short covering ahead of FOMC minutes and perhaps cautious guidance from GC member Panetta (eager to avoid a normalisation tantrum by tightening gradually, adds normal is not neutral and the natural rate is now significantly below pre-GFC levels). Note also, decent option expiry interest between 1.0650-45 (1.47 bn) could yet drag the headline pair lower into the NY cut.

DXY

As noted above, some respite for the Dollar after its recent losing streak with no obvious catalysts other than consolidation and corrective trade heading into comments from Fed’s Brainard and the account of May’s policy meeting, The index bounced a tad further from yesterday’s low off a fractionally firmer base to probe 102.250 amidst broad recovery gains within and outside the basket. Also on the midweek agenda, weekly MBA mortgage applications hot on the heels of weak new home sales, the ever erratic durable goods series and Usd 48 bn 5 year T-note supply.

CHF/AUD/CAD/JPY/GBP  

All conceding ground to the Buck and/or acknowledging that the market mood remains fragile to the extent that bouts of renewed risk appetite could easily reverse in relatively short order. The Franc is back below 0.9600, albeit maintaining a firmer line vs the Euro under 1.0300, the Aussie has retreated through 0.7100 again with a contraction in Q1 construction work done offsetting RBA’s Ellis outlining further tightening guidance overnight, the Loonie is trying to keep its head above 1.2850 with the assistance of strength in WTI, the Yen is striving to contain declines beneath 127.00 and the Pound is attempting to retain grip of the 1.2500 handle with tailwinds from the Eur/Gbp cross that saw stop-driven sales on a break of lows circa 0.8522.   

SCANDI/EM

The dial shifted in favour of the Nok over the Sek, possibly on data as Norway’s LFS jobless rate fell a tad more than forecast in contrast to an uptick in Sweden’s sa unemployment, slowdown in ppi and mixed sentiment indicators, but it more likely boils down to Brent crude nudging Usd 115.00/brl again. Elsewhere, no relief for the Try on the eve of the CBRT and the Rub has pulled back from fresh peaks ahead of an intra-scheduled CBR gathering arranged for tomorrow.

25 May 2022 - 10:20- Fixed IncomeEconomic Commentary- Source: Newsquawk