EUROPEAN FX UPDATE: Kiwi soars post-RBNZ, while Buck licks wounds post-Waller

Analysis details (10:23)

NZD/AUD

In stark contrast to yesterday’s dovish Fed pivot, the RBNZ took a hawkish turn after holding rates as universally expected via a tweak to guidance and an upward revision to the OCR path. To recap, the accompanying statement included the line that ‘if inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further’ in addition to the standard rates will have to remain restrictive message, while projections for the Official Cash Rate were lifted from March 2024 through March 2025, to 5.56% from 5.36% at the end of the forecast horizon compared to the current 5.5%. In response, Nzd/Usd rallied from sub-0.6150 to top 0.6200 at one stage, while the Aud/Nzd cross reversed to 1.0725 from 1.0836 and kept Aud/Usd capped within a 0.6676-22 range following mixed Aussie data in the form of cooler than forecast CPI metrics vs a surprise jump in construction work completed.

DXY

The Dollar and index succumbed to more intense selling pressure after Fed’s Waller embellished his increasing confidence that policy is well positioned to slow the economy and get inflation back to 2% with remarks about conditionality for lower rates, as US Treasuries continued to bull-steepen. The DXY descended to a 102.61 low on Tuesday and extended declines through 102.50 via key Fib support along the way before finding underlying bids at 102.46. USTs shed some gains and the Greenback clawed back a bit of lost ground in consolidative trade that saw the index rebound to 102.91 ahead of the second read of Q3 GDP, comments from another Fed hawk, Mester, and the latest Beige Book.

CHF 

Notwithstanding the aforementioned Buck bounce, a welcome improvement in Swiss investor sentiment may have helped the Franc maintain momentum and 0.8800+ status, while Usd/Chf also retained a downside bias in line with a retreat in Eur/Chf post-softer than consensus Eurozone CPI metrics.

CAD/JPY/GBP/EUR   

All unwinding gains made at the expense of their US counterpart, as the Loonie retreated from just over 1.3550 to 1.3582 in advance of Canada’s Q3 current account balance and the Yen reversed from 146.68 to 147.66 after BoJ Board Member Adachi said Japan is yet to see a positive wage-inflation cycle become embedded enough and it is appropriate to patiently maintain easy policy, adding that if needed, the BoJ will take additional easing steps and repeating that the steps taken in October to make YCC more flexible are not aimed at laying the groundwork for policy normalisation. Elsewhere, Sterling lost 1.2700+ status regardless of contrasting BoE consumer credit, mortgage lending and approvals against expectations or yet another reminder from Governor Bailey that the battle to combat inflation must go on, and the Euro could not retain hold of the 1.1000 handle against the backdrop of weaker than anticipated preliminary German state and Spanish CPI readings and ECB’s Stournaras touting mid-2024 for the start of easing. However, Eur/Usd was propped up by decent option expiry interest between 1.1975-70 (1.6 bn) and the former 1.1965-60 resistance/breakout zone.

SCANDI/EM

Not much support for the Sek from a raft of conflicting Swedish macro releases or for the Try even though the CBRT Governor tried her best to talk up the Lira (inflation expectations showed an improvement after monetary policy steps and impacted pricing behaviour positively, preliminary indications show that monthly inflation in November continues to slow and it's time to shift into the Try). Conversely, the Cny and Cnh rebounded firmly to probe significant 200 DMAs vs the Usd with a tailwind from the PBoC’s bullish 7.1031 midpoint fix.

29 Nov 2023 - 10:23- Research Sheet- Source: Newsquawk