EUROPEAN FX UPDATE: typically tight ranges and tentative pre-FOMC trade

Analysis details (09:55)

DXY

There are some exceptions to the general rule, but major pairings are mostly going through the motions before the Fed and waiting to see if the decision on rates, QT and chair Powell’s post-meeting press conference align with median expectations or deviate enough to warrant a change in the overall direction and trend that has seen the Buck broadly outperform amidst increasingly hawkish policy guidance and market pricing. The Dollar index is pivoting 103.500 having peaked just shy of 104.000 on April 28 and narrowly holding above 103.00 yesterday, but may glean some near term impetus ahead of the FOMC from ADP and the services ISM. Note, a detailed Fed preview is available under the Research Suite section of the Newsquawk website.

AUD/NZD/GBP/CAD

Another fillip for the Aussie hot on the heels of Tuesday’s above consensus RBA rate increase as final retail sales data came in much stronger than anticipated, and GS upped the ante in terms of further tightening with a call for back-to-back 50 bp moves in June and July. However, Aud/Usd remains toppy above 0.7100 and capped into 0.7150 and the 10 DMA that almost coincides with yesterday’s high, while the Aud/Nzd cross continues to straddle 1.1050 as the Kiwi consolidates on the 0.6400 handle vs its US counterpart in wake of in line and upbeat NZ labour metrics, bar a dip in the participation rate. Elsewhere, the Pound is still probing 1.2500 against its US peer and striving to contain declines below 0.8400 vs the Euro with some traction from expectations for another ¼ point BoE hike tomorrow, while the Loonie heads into Canadian trade data closer to 1.2800 than 1.2850 with a decent tailwind from a firm rebound in WTI.

JPY/EUR/CHF

The Yen remains tightly bound around 130.00 as Japanese participants observe yet another holiday (Greenery Day this time) and the Euro is attempting to form a 1.0500+ base with the aid of more ECB rhetoric leaning towards a July hike, but the Franc is lagging near 0.9800 against the backdrop of firmer global bond yields following a fleeting downturn on Tuesday.

SCANDI/EM

Minor Nok vs the outperformance in tandem with Brent getting to within a cent of Usd 109/brl compared to a low marginally under Usd 105.50 before the official EU embargo on Russian oil announcement, while the Inr got a surprise from the RBI that raised its key rate by 40 bp and reserve ratio by 50 bp to 4.40% and 4.50% respectively after an off-cycle policy meeting and the Cnh held recovery gains on the final day of China’s four day Labour Day break.

04 May 2022 - 09:55- Fixed IncomeResearch Sheet- Source: Newsquawk