WEEKLY FX WRAP: flagging Greenback gets headline NFP fillip

Analysis details (16:22)

USD

A holiday-shortened week, but no lack of price action even though implied volatility continued to dwindle through the ultimately safe passage of the US debt ceiling bill to President Biden’s office via the House and Senate. Indeed, after a rather forgettable Memorial Monday, the Dollar and DXY gathered upside momentum into month end and reached midweek peaks, at 104.700 for the index with the aid of an unexpected jump in JOLTS job openings to 10 mn+ that overshadowed a much weaker than forecast Chicago PMI. However, the Buck faded fast as June kicked off and lost 104.000+ status in terms of the DXY on Thursday in a knock-on reaction to two current FOMC voters backing a June rate hike skip. Jefferson and Harker were both keen to stress this does not mean a pause, but the latter subsequently added a few dovish nuances, namely that the Fed is close to the point where it can hold interest rates in place and is closely monitoring data to assess whether additional policy tightening will be needed, adding that it doesn't have to keep tightening and he thinks it should ‘at least’ skip hiking next month. Moreover, after a bumper ADP national employment report, rate expectations retreated in response to a deeper contraction in ISM manufacturing new orders and a marked slowdown in prices paid, with Greenback following suit as the index hit a w-t-d base of 103.380 in the run up to the official BLS release. In the event, headline payrolls beat the street handsomely, for the 13th time in the last 14 and came with a +93k net 2 month back revision to offset a bigger than forecast rise in the unemployment rate and slightly softer than anticipated average earnings y/y. However, June pricing barely changed and the DXY waned after a bounce to 103.900 with some note taken of the latest NY Fed monthly Multivariate Core Trend (MCT) model update showing inflation persistence declining significantly in April.

AUD/CNY-CNH

Having been hit by collapsing commodities and Yuan contagion for the most part, the Aussie embarked on a major recovery rally, with the aid of its US rival’s pullback and a firm bounce in base metals alongside the Cny and Cnh. To recap, the Yuan depreciated markedly as China’s official NBS manufacturing and composite PMIs surprised to the downside and sparked global growth concerns, but the Caixin manufacturing PMI returned to expansionary territory and source reports suggested that the Chinese authorities are mulling a property-market support package to bolster the economy. Usd/Cny and Usd/Cnh recoiled towards the bottom of 7.0570-7.1240 and 7.0670-7.1400 respective ranges, while Aud/Usd rebounded from 0.6459 to 0.6638, with independent impetus via Australia hiking its minimum wage hot on the heels of stronger than consensus and previous weighted monthly CPI and ANZ raising its terminal RBA rate projection to 4.35% from 4.1% ahead of next week’s policy meeting.

NZD/CAD

The Kiwi piggy-backed its Antipodean peer, but with a lag between 0.5986-0.6111 parameters as Nzd/Usd was hampered to an extent by weaker than feared NZ terms of trade for Q1, import and export prices, while the Loonie got a late boost from what looked like a pre-OPEC+ short squeeze in oil to compound some earlier upbeat Canadian macro news in the form of Canadian GDP metrics rather than the manufacturing PMI that slipped beneath the 50.0 growth/contraction threshold. Usd/Cad clawed back from 1.3651 to within single digits of 1.3400 at one stage, awaiting the BoC next week for further direction.

GBP/EUR/CHF/JPY 

All making way for the Dollar’s post-US jobs data revival, but Sterling retained solid net gains within 1.2544-1.2328 extremes and the Pound outperformed the Euro between 0.8694-0.8568 bounds on diverging BoE-Fed/ECB policy perceptions after the recent estimate-topping UK inflation data, hawkish comments from BoE’s Mann noting that core prices are stickier at home than in the US or Eurozone, and BRC shop prices hitting a y/y series high. Conversely, prelim EZ CPIs were sub-forecast in line with most national readings, aside from Italy and the Netherlands, while GC members generally toned down guidance, albeit remaining focused on the more stubborn core and President Lagarde reiterating the mantra that inflation is too high and set to remain that way for too long, so we will keep moving forward – determined and undeterred – until we see that inflation is returning to our 2% medium-term target in a timely manner. Hence, Eur/Usd held above 1.0700 having been up to 1.0778 and as low as 1.0636. Elsewhere, the Franc and Yen were far from in sync, though broadly traded along risk and yield differential lines vs their US counterpart. Nevertheless, while Usd/Chf pared back within 0.9148-0.9015 confines, Usd/Jpy survived a couple of attempts to test 141.00 and peered over 138.50 at best under the threat of intervention irrespective of the fact that Japan’s top currency diplomat insisted that was expressly not the intention of an emergency FSA, MoF and BoJ meeting. 

SCANDI/EM

Troubled times for the Nok and Sek, former partly due to weakness in Brent and latter in wake of a downbeat Riksbank FSR and more expressions of worry about the Krona’s depreciation, while the Norges Bank only trimmed its daily foreign currency purchases for this month. Similarly, the Zar suffered more angst on SA specifics including power outages, and the Try was plagued with political-related issues after Erdogan succeeded in the Turkish Presidential run-off. On the flip-side, hawkish BCB and Banxico vibes via minutes offered the Brl and Mxn some traction along with the aforementioned recovery in commodities and the Czk took positives out of the CNB cutting its countercyclical buffer for Czech banks.

02 Jun 2023 - 16:21- Fixed IncomeData- Source: Newsquawk