EUROPEAN FX UPDATE: Kiwi soars, Sterling swoons and Greenback gyrates

Analysis details (09:55)

NZD/AUD

The Kiwi is the clear G10 outperformer in wake of NZ inflation data that exceeded consensus by sufficient magnitude to raise RBNZ rate expectations markedly. Indeed, OIS pricing jumped to indicate an 80%+ probability for a 75 bp hike in November and chiming with calls from ASB and ANZ that also sees another tightening move of the same size in February next year. Meanwhile, Kiwibank predicts that the OCR will peak at 4.5% in 2023, Westpac at 5% vs a previous forecast of 4.5% and ASB 5.25% to top the lot. Nzd/Usd peered over 0.5700 and the Aud/Nzd cross retreated through 1.1100 as Aud/Usd lagged either side of 0.6300 irrespective of RBA minutes revealing that the decision to pivot from half point rate increases earlier this month to 25 bp was a tight one based on the scale of rises already delivered allied to the time lag in monetary policy. 

DXY/CHF/EUR

Aside from the outperformance noted above, the Dollar was undermined by a further upturn in broad risk sentiment that pushed the index down beneath 112.000 before some underlying bids were seen and the Pound lost ground amidst uncertainty over BoE intentions regarding QT. The DXY recovered from a 111.760 low to 112.240 at one stage, but still giving the Franc and Euro incentive to claw back more of their recent losses within 0.9962-19 and 0.9823-74 respective parameters.

JPY/CAD/GBP

The Yen continued to tread water with only brief rebounds from the 149.00 handle against the Buck in acknowledgement of verbal intervention, but no tangible sign of physical action, while the Loonie straddled 1.3700 vs its US rival ahead of Canadian house starts that could offer some independent direction before attention turns to US ip. However, Sterling failed to emulate Monday’s feats, with Cable fading around 1.1400 and testing support into the round number below after a BoE spokesperson declined to comment on an FT article intimating that QT may be kicked down the road again.

SCANDI/EM     

No real reaction to Government appointments in Sweden, but the Sek derived more support from the ongoing pick-up in risk appetite and the Hkd via Usd sales by the HKMA. Conversely, the Inr was capped by reports of selling vs the Usd by oil importers to meet October payments and the Try took no delight in latest measures deployed by the CBRT aimed at enhancing Liraization, like a revision to the securities maintenance ratio to 5% and rise in the required level of bank bond holdings for FX deposits by an additional Try 80-100 bn.

18 Oct 2022 - 09:55- Fixed IncomeResearch Sheet- Source: Newsquawk