WEEKLY FX WRAP: several market-moving data points and some dovish policy pivots

Analysis details (17:22)

USD

The Dollar had a lengthy wait for tier one US macro releases to arrive, but preliminary PMIs and a semi-surprise from the BoC prompted price action along the way as the DXY fluctuated around 102.00 within an almost equidistant 102.430-101.500 range. To recap, the flash PMIs were better than expected, albeit still sub-50, and helped the index hit highs for the week before a fade and retreat to marginal new y-t-d low in the run up to a raft of data on Thursday, including advance Q4 GDP, durable goods orders and jobless claims. The former came in stronger than forecast, durables even more so and weekly claims fell further below 200k to confound consensus for a rebound to 205k. This gave the Buck another boost, but the DXY never really got close to best levels again as core PCE metrics were bang in line with expectations (y/y measure cooling to 4.4% from 4.7% previously) to underscore pricing for another scale down in the pace of Fed tightening next week. Moreover, the Greenback was capped by month end rebalancing factors given sell signals against most G10 rivals, and some lingering premonition that the BoC may have set the tone for others to follow by delivering a smaller 25 bp hike before pausing its cycle. However, most officials backed a 5%+ terminal rate ahead of the FOMC blackout and that implies at least one more ¼ point increase after February.

JPY/NZD/AUD        

All off peaks vs their US peer, but on course to net weekly gains between 131.11-129.03, 0.6525-0.6438 and 0.7142-0.6959 parameters, largely on the back of latest inflation reports. In short, Tokyo CPI was considerably hotter than anticipated, the headline y/y rate in Australia accelerated to a three decade-plus high and NZ readings were firmer than forecast, albeit under the RBNZ’s own estimate for Q4. Hence, the Aud/Nzd cross rallied from circa 1.0760 to 1.0984 on hawkish RBA rate recalibrations in contrast to markets remaining content with another 50 bp from the RBNZ. Back to Japan, and minutes of the BoJ’s December policy meeting revealed jitters about the YCT tweak, but this month’s SOO showed divisions over the outlook for wages and inflation, which suggests that Governor Kuroda may face opposition in terms of his pledge to maintain accommodation until he departs in April. 

CAD

The Loonie staged an impressive recovery from midweek low (1.3428) against its US counterpart to high since the middle of November 2022 (1.3302 or thereabouts), irrespective of the fact that the BoC called time on its series of rate hikes to assess the situation having reached a peak of 4.5%, and the comeback appeared to be mainly technical and risk-driven. Note also, BoC Governor Macklem stressed the conditionality of the pause and a resumption of the tightening cycle if the economy and inflation does not progress in line with the Bank’s projections. 

CHF/GBP/EUR

CS raised its call for the SNB to hike by 50 bp in March from 25 bp previously, but Schlegel was more reticent in stating that further interest rate rises cannot be ruled out at present, as its too early to sound the all clear for Swiss inflation even though a weak growth dynamic is anticipated in the coming quarters. Thus, the Franc was more in sync with external factors as it topped and bottomed at 0.9159 and 0.9279 vs the Dollar, while clawing back to parity against the Euro from 1.0069 at one stage, while the Pound did well to stay within sight of 1.2400 and contain losses around 0.8850 respectively (latter being the equivalent of 1.1300 in Gbp/Eur) given a bleak set of UK data and surveys (record ex-banks PSNB, far from flash services and composite PMIs, CBI trends and trades plus sub-forecast/prior PPI prints). Indeed, Sterling also had to contend with a dovish HSBC take on next week’s BoE rate verdict as the Bank predicted more MPC votes for a 25 bp hike than the half point factored in. Last, but far from least in context of importance, the Euro got mostly encouraging EZ PMIs and upbeat Ifo expectations to feed off, but it encountered stiff resistance on the 1.0900 handle and fell prey to LHS flows/orders for the 4 pm London close that saw Eur/Usd trip stops on a break of 1.0850 and a retest of lows between 1.0929-1.0836 bounds awaiting the ECB hot on the heels of the Fed (and BoE) next week.

SCANDI/EM   

The Nok gleaned traction from solid/stable Brent on balance, and perhaps DNB’s upward revision to its Norges Bank rate outlook (25 bp hikes in both March and June now envisaged), but bleak Swedish data weighed on the Sek regardless of Nordea pencilling an extra 25 bp hike from the Riksbank in April. Elsewhere, the Cnh got a lift when HK returned from New Year festivities on the reopening from Covid vibe, but the Try derived little from various fresh CBRT measures aimed at supporting the Lira and enhancing Liraization and the Zar was rattled by the SARB confounding consensus for a 50 bp hike and opting for 25 bp instead rather than Gold retreating from just shy of Usd 1950/oz. Conversely, the Huf rallied after the NBH reaffirmed its guidance to retain restrictive policy for a long time and use all measures to ensure liquidity, not to mention a welcome decline in natural gas prices, the Mxn strengthened in tandem with Mexican equites and WTI, and the Brl was boosted by strength in underlying commodities.

27 Jan 2023 - 17:22- ForexResearch Sheet- Source: Newsquawk