EUROPEAN FX UPDATE: high betas rebound as Greenback gravitates

Analysis details (09:50)

NZD/AUD

The Kiwi formed a firmer base after reclaiming 0.6200+ status against its US rival and finding support ahead of 1.0750 vs the Aussie that ran into some psychological resistance just shy of 0.6700 against the Buck in wake of fractionally firmer than forecast final retail sales in advance of CPI. However, the Antipodeans were also propped by the ongoing improvement in overall risk sentiment on the back of no further bank stress that stretched to commodities, while Citi’s month-end rebalancing model also flagged a moderate buying requirement vs the Usd and signs of real money purchases of Aud in line with that signal.

DXY/JPY/EUR/GBP

Aside from the aforementioned broadly negative portfolio impulses, the Dollar index lost momentum following a sub-103.000 close on Monday and retreated into a lower 102.760-520 range with no real traction gleaned via comments from Fed’s Jefferson who said inflation has cooled, but remains too high and the Bank is still learning how much tight monetary policy has impacted the economy and inflation. Meanwhile, the Yen clawed back a chunk of its heavy losses as UST-JGB differentials realigned after yesterday’s blow-out and irrespective of BoJ Governor Kuroda sticking to his ultra-dovish mantra as the sustainable inflation target has not yet been met and it is premature to debate an exit from easy policy. Usd/Jpy tested 130.50 to the downside from around 131.60 and the Euro managed to breach 1.0800 with the aid of an extended rebound in EGB yields rather than rebalancing flows that Citi deemed to be dampened by Eurozone debt developments alongside UK Gilts. Nevertheless, the Pound also forged more upside vs its US peer to circa 1.2330 at best on the back of higher BRC shop and Kantar supermarket prices that underscored BoE Governor Bailey’s reminder that more rate hikes would be warranted if inflation proves to be persistent.

CAD/CHF/SEK/NOK

The marginal G10 laggards, as the Loonie straddled 1.3650, the Franc pivoted 0.9150, the Swedish Crown was buffeted by choppy dividend payment flows approaching month end and the Norwegian Krona continued to consolidate post-last week’s hawkish Norges Bank hike. 

EM

Some respite for the Huf as Hungary’s current account deficit narrowed marginally before the latest NBH policy announcement that is widely anticipated to see rates maintained along with guidance to keep monetary conditions restrictive until inflation has returned to target.

28 Mar 2023 - 09:50- Fixed IncomeEconomic Commentary- Source: Newsquawk