EUROPEAN FX UPDATE: Yen revels in risk aversion, while Antipodes rebel

Analysis details (10:06)

DXY/JPY

It’s rather ironic that the latest and more pronounced Yen revival came without Japanese jawboning, hot on the heels of hawkish vibes via FOMC minutes and yet another ramp up in short term rates and yields. However, Usd/Jpy reversed sharply from 144.65 and breached 144.00 where 2.4 bn option expiries resided on the way towards 143.50 before stalling, while the Nikkei succumbed to a sobering bull market correction amidst broad risk aversion. Hence, the Yen clearly benefited from its traditional safe haven status and this was evident in abrupt retreats in cross pairings plus relative Dollar underperformance, with the index fading from a fresh w-t-d peak between 103.460-100 parameters in the run up to ADP, IJC, the non-manufacturing ISM and JOLTS either side of Fed’s Logan.  

NZD/AUD

Bucking the usual trend of weakness when the market mood is increasingly downbeat, the Kiwi and Aussie bounced from worst levels against the Greenback within 0.6164-0.6214 and 0.6634-86 respective ranges. Aud/Usd may have been encouraged by a wider than forecast trade surplus and the fact that the Yuan managed to stem losses with the aid of an even more emphatic PBoC push-back vs spot pricing midpoint fix for Usd/Cny overnight.

GBP/CHF/EUR/CAD

All narrowly mixed and a bit betwixt or between against the Buck, but the Pound regained 1.2700 status on the back of extended Gilt declines and the Sonia strip implying loftier BoE rates, with no assurance from BoE Governor Bailey as to when monetary policy might be easier again. On the flip-side, Sterling was undermined by an unexpectedly contractionary UK construction PMI and took time to digest the latest DMP that came with slightly softer 1 year CPI output price expectations - 9.31BST post on the Headline Feed for details. Elsewhere, the Franc remained contained inside 0.9000-0.8650 confines following comments from SNB’s Maechler (the Bank still deems inflation as being very high and doesn't rule out further rate increases), the Euro retreated further from 1.0900 irrespective of German industrial orders jumping over 5x consensus, and the Loonie continued to lag between 1.3279-1.3306 bounds in advance of Canadian trade data and Ivey PMIs.

SCANDI/EM

Risk-off positioning rattled the Sek and Nok, though the latter gleaned some traction from an uptick in Brent, while the Cny and Cnh nursed losses with the aforementioned PBoC prop in contrast to overall depreciation vs the Usd, and especially the Rub after somewhat indifferent remarks from CBR Governor Nabiullina (not targeting a specific Rouble level and any rate is acceptable to us, adding the Bank is prepared to intervene in the market only when we see risks to financial stability and there are none now). Staying with Central Banks, the Pln was defensive ahead of the NBP that is forecast to remain on hold, but mat deliver new forward guidance.

06 Jul 2023 - 10:06- Research Sheet- Source: Newsquawk