EUROPEAN FX UPDATE: relatively rangy and steady start to action-packed week

Analysis details (10:24)

DXY

Notwithstanding the absence of many Japanese market participants due to Monday’s Respect for the Aged holiday, price action was likely contained and ranges were fairly restrained given the looming risk events that comprised some key data, no less than eleven Central Bank policy meetings and the latest raft of global preliminary PMIs. Moreover, the Dollar index may have been conscious of the fact that CFTC data for the week to September 12 showed that IMM spec accounts covered shorts to less than Usd 1 bn compared to Usd 5.77 bn previously and were the least oversold and exposed since November last year. Hence, the DXY sat tight within 105.360-150 confines and inside the prior session range (105.410-080) that in turn sat between its weekly extremes (105.430-104.410). 

CHF/JPY/CAD/EUR

The Franc was a tad firmer than most major peers vs the Buck irrespective of another rise in weekly Swiss sight deposits, the Yen held fractionally above Friday’s lows on psychological grounds rather than anything fundamental, the Loonie continued to derive some underlying traction from buoyant crude and the Euro gleaned support from rebounding EGB yields after a second successive bearish close from a chart perspective. Usd/Chf meandered from 0.8956 to 0.8977, Usd/Jpy from 147.87 to 147.57, Usd/Cad from 1.3497 to 1.3528 ahead of Canadian PPI and RMP on the eve of CPI, and Eur/Usd drifted down from 1.0677 to 1.0657.

NZD/AUD

Marginal outperformance down under saw the Kiwi keep its head mainly afloat of 0.5900 against the Greenback and the Aussie retain a more secure grip of 0.6400. However, Nzd/Usd had to contend with a deeper decline in NZ’s PSI plus the worst of both worlds from the NZIER that cuts its 2023/24 GDP growth forecast to 0.4% from 0.6% and 2024/25 to 1.1% from 1.4%, while raising the bar for Q1 2024 CPI to 4.3% from 3.9% and affirming the full year 2024/25 CPI forecast at 2.4%. Next up for Aud/Usd, RBA minutes from this month’s hawkish-leaning hold gathering.

GBP

The Pound lagged largely below 1.2400 vs the Dollar and sub-0.8600 against the Euro awaiting UK inflation data and the BoE on Wednesday and Thursday respectively in what appeared to be defensive positioning in case the MPC signalled an end to the tightening cycle after hiking another 25 bp to 5.5%.

SCANDI/EM

Risk aversion rattled the Sek and hit the Nok even harder in the run up to the Riksbank and Norges Bank, while the Inr had to rely on further RBI intervention to keep it above all time lows vs the Usd and the Cny/Cnh held above 7.3000 following another heavy PBoC fix and an unscheduled chat between US National Security Adviser Sullivan and Chinese Foreign Minister Wang Yi met in Malta over the weekend aimed at maintaining open lines of communication and with the discussions said to be candid, substantive and constructive. Elsewhere, the Czk was underpinned by firmer than expected Czech PPI metrics and CNB Governor Michl who quipped let’s forget about near-term rate cuts and there will be easing in September and October, while the Bank expect higher rates in the longer term and wants to be hawkish. Furthermore, Michl said core inflation does not allow a rate cut now and they will wait for data in November and January.

18 Sep 2023 - 10:24- Fixed IncomeData- Source: Newsquawk