EUROPEAN FX UPDATE: Yen and Yuan diverge on yield and data dynamics

Analysis details (10:15)

DXY/JPY/CNY-CNH

The Dollar remained mostly solid and the index continued to hover near its 104.000 June pivot point in the ongoing absence of top tier US macro releases and Fed rhetoric due to the pre-FOMC blackout period. However, Treasury yields softened slightly to the benefit of the Yen especially and this along with decent option expiry interest kept Usd/Jpy contained between 139.00-140.00 parameters and the DXY trapped within 104.290-020 confines. Note also, export offers countered import bids in the headline pair, while a pullback in the Nikkei prompted some FX hedge unwinding overnight as well. Conversely, the Yuan remained pressured well below 7.1000/7.1100 (onshore/offshore) irrespective of a prospective visit by US Secretary of State Blinken to China in the coming weeks intended to be a major step toward thawing relations between the two countries, as bleak Chinese trade/export data compounded economic jitters.

AUD/CAD

RBA Governor Lowe and Deputy Governor Bullock helped the Aussie maintain post-hike momentum amidst a bout of risk aversion and mildly weaker than forecast real GDP metrics with further justification for the latest 25 bp rate increase as the former said the recent rise in minimum wage was a decisive factor and the latter used the term sticky in reference to inflation. Nevertheless, Aud/Usd stalled ahead of 0.6700 again on technical grounds given a Fib and the 200 DMA protecting the next big figure and with 1.6 bn option expiries from 0.6690 up to the round number also posing a formidable hurdle. Elsewhere, relative stability in WTI crude gave the Loonie sufficient impetus to bounce from sub-1.3400 vs the Greenback awaiting Canadian trade in advance of the BoC and what is anticipated as a very tight call between holding fire or reverting to tightening mode via a ¼ point rise like the RBA. Indeed, market pricing is 50-50 and implied volatility indicates a 68 pip break-even for Usd/Cad regardless of the analyst community heavily skewed in favour of another pause.

GBP/CHF/NZD/EUR

All a tad softer against the Buck, albeit off lows and inside recent ranges as Sterling stayed mainly afloat of 1.2400, the Franc hovered over the 0.9100 handle, the Kiwi weathered stronger Aud/Nzd headwinds through 1.1000 to keep sight of 0.6100 and the Euro held comfortably above 1.0650 in wake of more below consensus German data (IP) and ECB remarks stressing that the battle against inflation is not yet won.

SCANDI/EM

Some respite for the Sek, but not as much as the Nok against the backdrop of buoyancy in Brent, which merely added to Try woes as it plunged to new record lows beneath 23.0000 vs the Usd with little assistance from traders touting its depreciation as a strong signal of a move away from state controls in favour of a free market and noting that the decline in CBRT reserves has stopped after signs of an FX policy change. Moreover, the Lira did not get any support via GS suggesting that the CBRT could ratchet rates up to 25% at the June 22 policy meeting, if not sooner if it continues to swoon.

07 Jun 2023 - 10:15- Fixed IncomeData- Source: Newquawk