Daily FX Wrap: Risk aversion takes hold as JPY demand picks up. AUD also targeted while CAD gains also arrested. GBP still fighting back, not necessarily on CPI beat. EUR pushing higher through 1.0600 on risk aversion flow.
Another day of risk aversion, but by no means panic stations just yet compared to (not too) recent episodes. Fresh into the new Japanese fiscal year, JPY (re)divestment has yet to take hold, so this may well be having an impact of the scale and pace of repatriation flow we are used to seeing in times of geopolitical tension and risk off. The latest escalation of sabre rattling between the US and North Korea is cause for ‘repositioning’ at the very least, and to this end, we see USD/JPY vulnerable ahead of 110.00, with notable stops through the figure and 109.50 in the line of fire. Plenty of fresh demand mixed in here, but sellers will have the upper hand – initially – through 110.00.
As such, the market focus on data is a little distracted, and this in spite of Chinese inflation numbers out overnight, while in Japan, core machinery orders, PPI and unemployment are all on tap in the Asian session ahead.
The AUD is likely to remain on the backfoot accordingly, and only managing a tentative reclaim of the 0.7500 handle. Westpac consumer confidence overnight will be largely overlooked as traders await the key employment release on Thursday. Losses elsewhere were temporarily contained against NZD only, but further downside returned once Wall Street reflected the nervousness in the market. Fresh lows seen vs the JPY (naturally) while we have dipped below parity vs the CAD.
Fast forward to the North American session and it is all eyes on the BoC rate decision, but no change in policy expected. However, governor Poloz – who speaks later in the day – and Co have been pretty cautious in their accompanying statements of late, but they will be hard pressed to gloss over the much improved domestic growth and payrolls data of late. USD/CAD in the meantime has rejected the upper 1.3400’s, but on the downside has stalled ahead of 1.3300 with buyers coming in here on the negative risk correlation.
Onto Europe, and little on the continent to note, but in the UK we have the key employment report, which is ever more under scrutiny given the ‘harmful’ effects of exchange rate led inflation. In the overnight session on Tuesday, we saw the BRC retail sales monitor slip under the radar, but showing a larger miss than the -0.5% expected year on year to March, recording -1.0%. Headline CPI today came in at a slightly higher than expected +0.4% in March, but catching the eye were the much higher than expected PPI/input prices which hurts the manufacturing sector. Wednesday data relates to Feb, with average earnings ex bonus seen moderating from 2.3% to 2.1%. No change in the unemployment rate expected, while the
claimant count is seen falling by 3k. Cable found some support at 1.2370 on Monday, but along with EUR/GBP maintains a tight range as traders here await the mood of the Brexit negotiations ahead. Weak numbers tomorrow will naturally see another adjustment lower.
For the EUR, it is hard to see any meaningful recovery ahead of the French elections, and for all the adjustments seen in the polls (given the performance of said polls in the UK referendum and US elections), nervousness will continue to weigh on the single unit for now. With risk aversion at hand, EUR/JPY has been targeted in the early part of the week, with 117.00 relinquished, but with the lead spot rate looking overstretched in the 1.0570-80 area, there has been a staggered move back above 1.0600. Pre 1.0650 and 1.0700 levels seem to be harbouring good selling interest by the intra-day market, which in these thin markets looks to be working for now.
Nothing on the US data run to faze the FX markets Wednesday, with broader risk sentiment set to dominate for now.
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