EUROPEAN FX UPDATE: Kiwi outflanks rivals on rate and risk dynamics

Analysis details (10:20)

NZD/AUD

The RBNZ matched market expectations in terms of the decision to lift its OCR by another 25 bp overnight, but there was more than enough in the accompanying statement to appease those looking for a bigger ½ point tightening move as the Bank raised the projected rate path to peak at a higher level than envisaged at the November policy meeting. Moreover, the call was tight and the Board is willing to hike more aggressively to reach 2.84% by mid-2023 rather than the 2.4% estimated previously, albeit with Governor Orr backing a step-by-step approach even though rates do need to rise significantly. In response, and with extra momentum from buoyant risk sentiment, the Kiwi is inching towards 0.6800 vs its US counterpart and is above 1.0700 against the Aussie irrespective of Aud/Usd climbing over 0.7250 against the backdrop of rebounding commodity prices instead of mixed data in the form of Q4 wages and construction work done.  

DXY/CAD

96.000 remains pivotal for the Greenback from an index standpoint, but the Loonie is eyeing a psychological level of its own at 1.2700 as risk appetite continues to recover from Russia-Ukraine induced lows. However, the market mood remains skittish and prone to swings on breaking headlines awaiting further repercussions from Russia’s incursions to ensure independence in the breakaway Eastern Ukraine regions and build-up of troops in Donbass. Hence, the DXY is sticking close to the aforementioned round number that has become pivotal of late within narrow 96.111-95.853 confines.

EUR/GBP

The Euro has drifted back to trade mostly sub-1.1350 and above 1.1300 after Tuesday’s range breaks and Eur/Usd looks somewhat stifled by an array of option expiries covering its recent tracks given 1.32 bn sitting between 1.1275-80, 1.24 bn at the 1.1300 strike and 1.57 bn from 1.1345-60. Meanwhile, the Pound is holding relatively steady through a stream of BoE comments from the TSC hearing that effectively underline guidance for more hikes in the cycle to curb upside inflation risks, but suggest less inclination for the more hawkish MPC members to dissent in favour of 50 bp rises in the Bank Rate. Cable is cresting 1.3600 and Eur/Gbp is meandering under 0.8350.

CHF/JPY   

Marginal outperformance in the Franc vs Buck and Yen, as Usd/Chf eyes 0.9200 and Usd/Jpy firms off support bang on or very close to 115.00 in holiday-thinned volumes due to the Emperor’s Birthday in Japan.

SCANDI/EM

The Nok is outpacing the Sek in the favourable risk climate and regardless of a deeper retracement in Brent to Usd 95.81 from Tuesday’s extremely lofty Usd 99.50 pinnacle, so the inference is that divergent Central Bank policy stances are exerting some influence. Elsewhere, the Cnh and Cny continue to strengthen with liquidity injections from the PBoC and China pledging more support for parts of the economy that are struggling, the Zar will be hoping for fiscal stimulus from the SA Budget that is due to be presented around 12.00GMT, and the Rub is holding off worst levels awaiting further developments on the Russia/Ukraine front.

23 Feb 2022 - 10:20- Fixed IncomeData- Source: newsquawk