EUROPEAN FX UPDATE: retracement after risk rout as sentiment stabilises

Analysis details (10:13)

DXY/CNY/CNH

It seems that 6.8000 or so in Usd/Cny and Usd/Cnh approaching 6.8400 hit some nerves in China judging by the response from the CBIRC that said the Yuan's weakening is not sustainable and warned against betting on the unilateral devaluation or appreciation as this could result in unnecessary losses. The Banking and Insurance Regulatory Committee also described recent Renminbi depreciation as a mean reversion and an appropriate correction or normal reflection, but onshore and offshore pairs both pulled back promptly to sub-6.7800 and 6.7850 respectively in response, with some spillover for the Dollar generally. Indeed, the index dipped below 104.500 having already drifted down from a 104.850 high just shy of Thursday’s new 104.920 y-t-d and multi-year apex amidst a broader retreat on risk grounds due to a pick-up in appetite or considerably less aversion than seen yesterday. Ahead, US import and export prices, plus prelimonary Michigan sentiment with inflation expectations and Fed rhetoric from Kaskari and Mester.

AUD    

Far from all change for the Aussie, but a much better Friday panning out due to the less gloomy market tone and enough encouragement to probe 0.6900 vs its US peer, while reclaiming 1.1000 against its Antipodean neighbour. Note also, Aud/Usd and Aud/Nzd are bouncing alongside the aforementioned Yuan revival.

NZD/CAD

The other commodity currencies are also taking advantage of improved conditions along with the Greenback downturn, with the Kiwi testing 0.6250 and Loonie hovering just over 1.3000 where the top of 1.1 bn option expiries extending to 1.2990 sit. Usd/Cad is also digesting commentary from BoC Deputy Governor Gravelle flagging upgrades to the Bank’s inflation forecasts as March CPI was above its estimate and remarking that the current 1% key rate is too stimulative. Next up, the BoC’’s Q1 Loans Survey.

CHF/EUR

Having defended parity for a while on Thursday, the Franc eventually caved and Usd/Chf spiked towards 1.0050, but the pair is back below 1.0000, while the Euro straddles 1.0400 in headline and cross terms, with some support in Eur/Usd coming from the Yuan rather than Eurozone specifics.

GBP/JPY

Sterling is lagging and a flatter Sonia strip may be weighing on the Pound on top of a correction in Eur/Gbp from circa 0.8500 lows, as Cable struggles to maintain 1.2200+ status. However, the clear G10 laggard is the Yen on an unwinding of safe haven premium and renewed bear-steepening along the Treasury curve. Usd/Jpy continues to whipsaw in wide ranges and currently under 129.00 between 129.36-128.25 extremes.

SCANDI/EM

The more buoyant, if not bullish mood is underpinning the Sek and Nok following mixed Norwegian GDP metrics, while the Mxn is reflecting on a slightly hawkish Banxico hike as the 4-1 split for 50 bp saw dissent in favour of a 75 bp increase. Elsewhere, somewhat conflicting signals for the Czk via CNB minutes that underlined the dovish credentials of new chief Michl in contrast to Holub who does not think the tightening move earlier this month is necessarily the last.

13 May 2022 - 10:13- Fixed IncomeData- Source: newsquawk