EUROPEAN FX UPDATE: RBA gives Aussie a head start before the Fed

Analysis details (10:10)

AUD/NZD/GBP/NOK/SEK

The Aussie is clearly outperforming, or clawing back more losses than other G10 currencies against the Greenback, and the RBA is almost entirely responsible for its revival as it exceeded expectations with a 25 bp hike vs +15 bp consensus overnight, while delivering relatively hawkish guidance for further tightening over coming months. This was also reaffirmed by Governor Lowe in post-policy meeting remarks that included a notion of what level he sees as normal for the cash rate, at 2.5%, but no real clue about how fast the RBA will likely move to get there. Aud/Usd tested resistance into 0.7150 in response and the Aud/Nzd cross shot up more than 100 pips to circa 1.1063 ahead of NZ jobs and labour cost data that could provide the Kiwi with some independent direction after a marked slowdown in building consents that leaves Nzd/Usd pretty flat and straddling 0.6450. Elsewhere, the Pound perked up on return of UK markets from the early May Bank holiday weekend with Cable firmly back above 1.2500 and probing 1.2550, while Eur/Gbp retreated through 0.8400 again in advance of an anticipated 25 bp hike from the BoE on Thursday that would put it further in front of the ECB on the path of normalisation. In similar vein, the Swedish Crown and Norwegian Krona are both firmer vs the Euro on policy divergence following the surprise Riksbank hike last week and either confirmation from the Norges Bank that another 25 bp rise is coming in June or an earlier strike this Thursday. Eur/Sek is pivoting 10.3900 and Eur/Nok 9.9100. Note, the final UK manufacturing PMI reading was upwardly revised, but hardly impacted.  

DXY

Aside from the obvious inhibitions about breaching 104.000, 103.930 represents a near term obstacle as the peak from April 28 and some chart technicians are also flagging a long term resistance level ar 103.807 even though it is a fraction under the new multi-year high. Moreover, it remains to be seen whether the Dollar has already factored enough FOMC premium or there is further upside potential and bang for the Buck via an oversized hike and/or aggressive angle of QT attack vs expectations. Looking at the index on the eve of the Fed, bullish momentum has waned a bit as other global bond yields correct higher to close some of the gap on US Treasuries, and a few longs pare positions within a 103.680-390 range inside Monday’s 103.740-100 extremes. Next up for the Greenback, factory orders.

JPY/EUR/CAD/CHF

All quite tightly bound against their US counterpart as the Yen rotates around 130.00 in lighter volumes due to Constitution Memorial Day in Japan, the Euro clings to the 1.0500 handle with the assistance of ascending trendline support just under the round number circa 1.0494, the Loonie rebounds from sub-1.2900 amidst a degree of stability in crude and the Franc keeps its head a fraction above 0.9800.

EM

The Cnh has done pretty well to stave off another assault on 6.7000 against the Usd in the ongoing absence of Chinese participants, including the PBoC, out for the extended Labour Day break, while the Krw will be relying on the BoK to respond to stronger than forecast SK inflation given a hawkish set of minutes and commentary to that effect after the data.

03 May 2022 - 10:10- Fixed IncomeData- Source: Newsquawk