EUROPEAN FX UPDATE: Yen and Aussie the major outliers

Analysis details (10:18)

JPY/DXY/AUD

The Buck remains bid overall on a bullish mix of hawkish Fed commentary, high yields and demand as a safer haven away from the direct adverse knock-on effects of the Russia-Ukraine conflict, but in index terms it is still being driven higher by the Yen in the main, regardless of the latest verbal intervention from Japanese Government officials aimed at slowing the pace of the surge in Usd/Jpy rather than targeting any specific level as a line in the sand. Moreover, so called barriers set at full and half round numbers are being knocked over and breached without much effort, while a ‘key’ technical level at 127.35 did not offer much technical resistance as the headline pair extended beyond 127.50 and 128.00 on the way to circa 128.44 before pausing for breath, and it may well be that there is no meaningful obstacle until Usd/Jpy hits 130.00. On the flipside, the DXY topped 101.00 within a 101.020-100.690 range and is now consolidating in better volumes due to the return of EU markets from their four day Easter weekend, and the Aussie is outperforming outside the basket with the aid of hawkish-leaning RBA policy meeting minutes overnight. To recap, the accounts underlined the Board’s acknowledgement of rising inflation, globally and domestically, as measures of headline and core prices accelerate. Accordingly, Aud/Usd tops the G10 ranks and retested 0.7400, as the Aud/Nzd cross secured a firmer grip of the 1.0900 handle ahead of the composite leading index.

NZD/CAD/EUR/GBP       

All taking advantage of the aforementioned Greenback graviation amidst some corrective price action in currency and debt markets where EU bonds are playing catch-up with US Treasuries losses and picking up the baton, or stick to be more precise with extended declines in futures and advances in yield. The Kiwi is also taking heed of RBNZ rhetoric from Governor Orr, as he reiterated that policy is being weighted towards ensuring that inflation expectations are contained inwake of the larger than expected 50 bp hike last week, with Nzd/Usd hovering around 0.6750 on the eve of Q1 CPI data that could convince the RBNZ that back-to-back half point rises in the OCR may be warranted. Elsewhere, the Loonie does not look too ruffled by a downturn in oil prices as it holds above 1.2600 pre-Canadian housing starts and CPI on Wednesday, the Euro is trying to regain 1.0800+ status, but hit resistance bang on 0.8300 against the Pound and could be hampered by decent option expiry interest in Eur/Usd at the big figure (1.3 bn). Similarly, Sterling seems capped into 1.3050 vs its US counterpart even though the benchmark 10 year Gilt yield is on the cusp of touching the psychological 2% level.

CHF

The Franc is the other major laggard on relative rate premium and SNB/Fed plus other global Central Bank divergence, and without any sign of official selling via latest weekly Swiss sight deposit balances. Usd/Chf is over 0.9450 and Eur/Chf has rebounded through 1.0200 in the run up to commentary from SNB chief Jordan at the Peterson Institute from 17.30BST.

SCANDI/EM

Broad risk aversion and a pull-back in Brent alongside WTI have not undermined the Sek or Nok, and this might be due to perceptions that the Riksbank gets ahead of the ECB on the rate normalisation front, while the latter is perhaps acknowledging a considerably wider Norwegian trade surplus. Conversely, widespread losses against the Usd in the EM space and the Cnh is approaching 6.4000 before China’s sets LPRs tomorrow against the backdrop of heightened easing speculation and expectations, in stark contrast to the Pln that is taking on board hawkish remarks from NBP’s Wnorowski who is not ruling out a 7.5% peak in interest rates.

19 Apr 2022 - 10:17- Fixed IncomeData- Source: Newsquawk