EUROPEAN FX UPDATE: high beta revival hot on the heels of midweek retreat

Analysis details (10:25)

AUD/NZD

All change, or at least a decent rebound down under as the Aussie got a boost from much stronger than expected Q4 capex data overnight to offset the negatives of a surprise decline in construction work completed and softer than forecast wages in the previous session. Meanwhile, the Kiwi revisited post-RBNZ peaks amidst warnings from Governor Orr that cyclone-related inflation pressure may mean that rates will have to be higher for longer and a recovery in overall risk appetite. Aud/Usd and Nzd/Usd consolidated above 0.6800 and 0.6200 respectively, while the Aud/Nzd cross sat tight within 1.0950-27 confines.

DXY

Notwithstanding the aforementioned Antipodean bounce, the Dollar and index were underpinned by FOMC minutes revealing some hawkish leanings, such as a few participants favouring a 50 bp hike in rates earlier this month, a number observing that a policy stance that proved to be insufficiently restrictive could halt recent progress in moderating inflationary pressures, and the acknowledgment that financial conditions had eased in recent months, which some noted could necessitate a tighter stance of monetary policy. Hence, the Buck was firmly bid on dips and the DXY held firm on the 104.000 handle between 104.300-650 parameters awaiting the second look at US Q4 GDP and latest IJC metrics, with focus on the weekly tally for February’s BLS survey, plus more current Fed commentary from Bostic and Daly.

CAD/JPY

The Loonie and Yen managed to keep pace with their US peer as the former contained declines through 1.3550 and the latter stayed afloat of the psychological 135.00 level without the aid of Japanese supply via exporters due to the Emperor’s Day holiday.

EUR/GBP/CHF

All softer against the Greenback, with the Euro struggling to maintain 1.0600+ status irrespective of upward tweaks to final Eurozone inflation metrics, the Pound only really retaining grasp of the 1.2000 handle by virtue of hawkish remarks from BoE’s Mann (more tightening needed, caution that a pivot is not imminent and worried about the persistence of inflation into this year and 2024), and the Franc unable to defend 0.9300.

EM

The Ils was rocked by further Israeli military strikes on Gaza in response to rocket fire, the Zar handed back the bulk of its post-SA budget gains and the Try traded defensively ahead of an anticipated 50-100 bp CBRT rate cut, while the Krw latched on to hawkish guidance from the BoK Governor after a pause in the tightening cycle.

23 Feb 2023 - 10:25- Fixed IncomeData- Source: Newsquawk