EUROPEAN FX UPDATE: Riksbank hikes and tapers, while BoJ stays ultra-easy

Analysis details (10:20)

SEK/JPY

The Swedish Crown is soaring in stark contrast to the Japanese Yen to provide another clear example of one of the main, if not primary dynamics driving currencies at present - Central Bank policy divergence. In short, the Riksbank defied consensus with a 25 bp hike and compounded the hawkish decision by lifting its repo rate path to accommodate two or three more tightening moves in 2022, while also slowing the pace of QE during the second half of the year to start running down the balance sheet. Conversely, the BoJ stuck rigidly to its easing guns and underscored a determination to enforce YCC via unlimited JGB buying on every trading day aside from those when bidding is not anticipated. Moreover, Governor Kuroda was decidedly dovish in the post-meeting press conference, but remained silent on any specific Jpy levels and said it is inappropriate to talk about moves on a day-to-day basis. The upshot, Eur/Sek tumbled through a trio of key technical levels including the 10, 21 and 200 DMAs to probe 10.2550 and potentially open scope for a retest of the 10.2240 April 20 low, and at the other end of the scale Usd/Jpy took out barriers at 130.00, more at 130.50 alongside any Japanese export offers and a long term Fib at 130.57 on the way to circa 131.01.

DXY/EUR/GBP/CHF/CAD

On top of all the conflicting price action noted above, the Dollar and index have been very volatile in terms of testing and breaching big figures that resulted in the latter reclaiming 103.000+ status and extending gains to post yet another new multi-year pinnacle at 103.700. The Euro, Pound, Franc and Loonie all made way, with Eur/Usd, Cable, Usd/Chf and Usd/Cad sub-1.0500, under 1.2500, over 0.9700 and above 1.2850 respectively, before decent retracements across the board that could have been prompted by Yen crosses catching up with the aforementioned Usd/Jpy spike. Accordingly, the DXY retreated towards its 102.990 base, albeit holding a 103.000 handle and Sterling may have found some underlying bids around a key Fib retracement at 1.2495. Turning to fundamentals, the Buck has advanced Q1 GDP and the final T-note auction of the week/month to absorb, while the Euro preliminary German inflation mixed state reports and further ECB commentary after relatively dovish remarks from de Guindos in contrast to Visco joining the possible July rate hike crew. 

AUD/NZD

The Aussie and Kiwi also endured choppy moves as Aud/Usd whipsawed between 0.7162-0.7075 and Nzd/Usd within a 0.6548-0.6472 range, and the former fell as Usd/Cny-Cnh soared on a weaker PBoC onshore fix plus more restrictions in China to try and stem the Covid spread before rebounding firmly when the Chinese Commerce Ministry said the US is considering lowering tariffs on Chinese goods and consumers, in the interest of US firms and consumers, adding that China is willing to work with the EU to keep supply chains stable. 

NOK/EM

Not to be too outdone by its Scandinavian neighbour, Norges Bank Governor Olsen gave the Nok a boost to get close to 9.7900 vs the Eur by reiterating that domestic economic activity is strong and the buildup of pressures in the economy is likely to drive inflation higher, so the policy rate is therefore on the rise. He also noted that persistent international price pressures could also lead to higher wages and price inflation than currently forecast to open the door for a possible hike earlier than signalled. Elsewhere, the NBH lifted the Huf with a 30 bp increase in the 1 week depo rate to 6.45%, but the CBRT Governor kept the Try depressed with higher inflation forecasts and an assertion that developments show that easing was the correct course of action.

28 Apr 2022 - 10:20- Fixed IncomeEconomic Commentary- Source: Newsquawk