EUROPEAN FX UPDATE: RBA loses patience, BoJ gets twitchy and Riksbank ready

Analysis details (10:12)

AUD/NZD

The Aussie paused briefly ahead of 0.7600 vs its US rival and just above the psychological level to acknowledge Fib resistance, though the latter only stalled its advance on the back of a hawkish RBA hold briefly as Aud/Usd hovers just under a new multi-month peak around 0.7639. To recap, after keeping the Cash Rate at 0.1% the accompanying statement noted a pick-up in inflation and expectations of further increases, but the main change from the prior policy meeting was the omission of the word patient in reference to the timing of a hike that markets have taken hawkishly. 0.7650 will be perceived as the natural next upside target, although there is a high from mid-June 2021 that comes in a fraction below the half round number at 0.7647, while the Aud/Nzd is encountering some opposition around 1.0900 as the Kiwi rises in the slipstream of its Antipodean counterpart to probe 0.7000 against the Greenback, with independent impetus from BNZ upping its May RBNZ rate call to +50 bp from +25 bp previously.

DXY/SEK/CAD/GBP/EUR

99.000 was breached on Monday, but only marginally and not emphatically given less demand for the Buck on safe haven grounds, competition from the Loonie fuelled by firmer oil and the Swedish Krona in wake of another Riksbank member expressing concern about the prospect of inflation exceeding current projections. In fact, Floden went further than others, including Governor Ingves and Deputy Governor Ohlsson by saying that policy needs to be reevaluated at the next meeting as the risk of persistently higher inflation has risen. The index is holding within a 99.031-98.856 range, Usd/Cad is hovering near 1.2450 and Eur/Sek dipped beneath 10.3100 even though the Euro is keeping afloat vs its US peer between 10.989-62 parameters following mostly firmer than forecast Eurozone services and composite PMIs. Similarly, the Pound retained grasp of the 1.3100 handle with assistance from upgrades to the final UK services and composite PMIs, but also a deeper pull-back in Eur/Gbp towards 0.8350 as EGB/Gilt yield differentials widen.

CHF/JPY

The low yielders or funding currencies are narrowly mixed against the Dollar, as the Franc contains losses through 0.9250 and gleans a bit more from ongoing Euro angst on the Russia-Ukraine conflict front. Meanwhile, the Yen is prone to diverging UST-JGB divergence after the BoJ pledged to buy more 10 year bonds in pursuit of its YCT and showed some discomfort with rapid currency moves rather than Jpy weakness, adding that JGB purchases may not be the last resort. Hence, Usd/Jpy bounced from sub-122.50 to test 123.00 again, Eur/Jpy is circa 134.70 and Eur/Chf closer to the 1.0150 mark that might keep the SNB on its toes.

NOK/EM

Brent’s more pronounced bounce to just 10 cents short of Usd 110/brl at best is keeping the Nok propped, but merely adds to the woe or the Try via the imported crude/energy cost channel that is already propelling pipeline and headline inflation to exorbitant levels. Conversely, the Zar is underpinned following a rise in SA’s whole economy PMI.

05 Apr 2022 - 10:12- Fixed IncomeResearch Sheet- Source: Newsquawk