EUROPEAN FX UPDATE: tables turn against the Buck T-1 to FOMC

Analysis details (10:07)

DXY/JPY

What a difference a day made for the Dollar, or some of its rivals for independent reasons, as an upturn in risk sentiment, a retreat in global bond yields and repositioning for the new month sapped its recovery momentum. The index recoiled into a slightly narrower 111.570-110.820 range vs Monday’s 111.680-110.720 parameters amidst recoveries in all basket components and beyond, including the underperforming Yuan on better news in China via the Caixin manufacturing PMI and Zhengzhou in Henan province announcing that the city will lift temporary COVID controls for low-risk regions and gradually resume normal life, according to the Global Times. Meanwhile, talk in Tokyo about Yen intervention ramped up after more jawboning from Japanese Finance Minister Suzuki, including the teasing line that there are occasions when we confirm action right after we do it and other times when we don't, and Usd/Jpy slumped within 148.83-147.50 bounds.  

NZD/AUD

The Kiwi got a boost from a firm rebound in NZ building consents along with Aud/Nzd cross tailwinds in wake of the RBA making it back-to-back 25 bp hikes and maintaining guidance for further tightening, upgrading its inflation forecasts and trimming growth estimates. Subsequently, Governor Lowe underlined that the Board judged it appropriate to raise rates at a lower magnitude, while adding that it will return to larger hikes if deemed necessary or hold if the situation requires. Nzd/Usd climbed towards 0.5900 before fading ahead of the Q3 HLFS, Aud/Nzd retreated from 1.1000+ to almost 1.0950 and Aud/Usd was capped around 0.6450 having rebounded from just under 0.6400 in advance of AIG’s manufacturing index.

CHF/GBP/EUR/CAD

All taking advantage of the Greenback’s pre-Fed policy meeting fade, with the Franc shrugging off a deterioration in Swiss consumer confidence and slowdown in manufacturing PMI on its way back to circa 0.9932 from a near big figure below, Cable back on the 1.1500 handle following an unexpected upward revision to the final UK manufacturing PMI, the Euro reclaiming 0.9900+ status and eyeing almost 2 bn option expiries at the 0.9950 strike, and the Loonie tracking a rebound in WTI to probe 1.3550 from sub-1.3600 in the run up to Canada’s manufacturing PMI that is due 15 minutes prior to the final US print and 90 minutes before the US ISM, JOLTS and construction spending releases.

SCANDI/EM

The Sek and Nok both benefited from buoyant risk appetite, but the latter gleaned extra impetus from a Brent bounce and rise in the Norwegian manufacturing PMI in contrast to Sweden where the Riksbank also published a downbeat Financial Markets Survey noting that participants are more pessimistic about functioning and liquidity in FX and Fixed Income markets. Elsewhere, the Zar got hawkish guidance from the SARB to compound a recovery in Gold, the Cny and Cnh the aforementioned encouraging Chinese factors, but the Try lagged yet again as the CBRT issued another warning to Turkish banks about ‘off hours’ currency transactions and informed them that some lenders are holding Lira deposits with very high interest rates to circumvent bond holding requirements.

01 Nov 2022 - 10:07- Fixed IncomeData- Source: Newsquawk