Global Head of Macro Strategy
Summary: The weak US dollar of late has mostly been about a strong euro as other currencies have also struggled even more, notably the commodity dollars. Elsewhere, the JPY is picking up a strong bid since late yesterday, most likely on long yields dropping sharply than on any heavy anticipation that Friday’s Bank of Japan meeting will deliver policy drama.
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Today's Global Market Quick Take: Europe from the Saxo Strategy Team
FX Trading focus: BoJ preview. Weak AUD on commodity focus ahead of CPI. Weak USD is more “strong Euro”
The JPY is picking up a bid today as global long yields slumped sharply since yesterday. That is far more likely the reason for the JPY rebound as JPY shorts take profit ahead of this Friday’s Bank of Japan meeting rather than any notion or anticipation that new Governor Kazuo Ueda is about to uncork a policy surprise on the market. The setup is so unlike the arrival of Kuroda back in 2013, when the anticipation of shock and awe was warranted and even encouraged. Ueda is expected to avoid drama at this meeting with all signs and rhetoric pointing to continuity for now, even as we should all expect policy tweaks if global bond yields pull back toward cycle highs. The market isn’t particularly bothered here, with one-week JPY volatility actually far lower than it was before any meeting over the last 12 months (currently 11.4% vs. over 15% for the meetings since September). The irony would be if Ueda delivers nothing and yet the JPY strengthens sharply anyway because bond yields are continuing to drop. Favourites for positioning for a JPY rebound include GBPJPY and USDJPY – perhaps via long put 1-month spreads ahead of the meeting.
Little to update on the US debt ceiling issue. The US 30-year yield plunging some 14 basis points since the Friday close doesn’t suggest any widespread loss of confidence in US credit-worthiness even as we note odd pricing of some very short-dated US T-bills that suggest nervousness on parts of the curve where bills will be maturing and need rolling close to the anticipated time of trouble as early as early June. A 6-month T-bill auction yesterday raised no eyebrows. The Republican majority House whip claims that a vote will go ahead “this week” on the existing Republican bill, even as a Politico story suggests that there could be a dozen or more Republican representatives that are against the bill. The Republican majority is so narrow at 222-213 that losing anything over four votes will mean the bill doesn’t pass. That may raise the odds that the Democrats can find a few votes to cross the aisle and at least get a stop-gap bill done until next year. If the bill passes, the gauntlet will have been lowered and the risks of a mishap rise.
Chart: AUDUSD
The Aussie continues to trade heavily ahead of the Q1 CPI data in very early Asian hours tonight as the Philip Lowe RBA has soft-pedaled the rate hike cycle relative to most global peers and as we face the remarkable forward expectations that the ECB policy rate will nearly be at parity with the RBA’s by late this year. The lack of market expression of the “China re-opening” story, at least in terms of base metals prices also continues to weigh on the Aussie. Iron ore has lurched into an ugly slide recently and copper prices extended a more than week-long slide overnight. The US dollar has been sufficiently weak as well of late to prevent a meltdown in AUDUSD, but if the commodity support for the Aussie continues to erode and we get an in-line or weaker CPI report out of Australia, we could get a test of the range lows around a figure away at 0.6565, which could extend the focus lower, possibly all the way to the 2022 lows below 0.6200. It is worth noting that the RBA policy outlook faces considerable uncertainty beyond July, which will bring a new structure with a new monetary policy board that would dilute the Governor’s authority, together with Philip Lowe’s exit in September. But caution required here – this has been a choppy and rangebound chart – there is no real momentum unless we quickly head sub 0.6600 or above 0.6800.
The US dollar has firmed a bit from new lows versus the Euro today, which was partially buoyed by fresh ECB comments on hiking rates next Thursday, although the JPY has rallied the most today in Europe as discussed above. After several weeks of mostly very quiet price action, USDCNH has rallied sharply today – more than one day of that kind of move is a story that will need updating.
Yesterday saw another very weak regional manufacturing survey, this time the Dallas Fed’s manufacturing survey number, which put in almost dire reading of -23.4, the weakest reading since the financial crisis if we ignore the few pandemic break-out months of 2020. This echoed a similarly weak -31.3 reading in the Philly Fed survey. As we discussed in this morning’s Saxo Market Call podcast, these data points are confusing and don’t jibe at all with the improving trend in the S&P Global PMI numbers. We’ll get a couple of regional Fed services sector surveys today – also from the Philly and Dallas Feds – but confidence in this survey data is entirely lacking when the results are conflicting and as long as the labor market data remains tight. Part of the problem is likely in the wild swings in economy from the “pig through a python” pattern that wildly impacted the demand side of the economy and inflation, particularly on the manufacturing side from late 2020 and through much of 2021, only to be followed by a hangover on the readjustment to the trend. Corporate earnings reports in the coming couple of weeks might prove a helpful measure. One data point yesterday was US consumer staple giant Procter and Gamble reporting 3.5% YoY growth in revenue and only guiding for 0-4% revenue growth for the coming year with core inflation still running 4.5-5.5%, depending on the measure.
The last data points of note from the US before next Wednesday’s FOMC meeting include today’ April Consumer Confidence survey, Thursday’s weekly initial jobless claims, the Friday Mar. PCE Inflation report and the ISM’s – again, more surveys – next Monday for Manufacturing and Wednesday for Services. The March JOLTS job openings survey is up next Tuesday as well after raising eyebrows in dropping sharply in February.
Table: FX Board of G10 and CNH trend evolution and strength.
The Swiss franc continues to ride high, even outpacing the strong Euro, as the FX Board makes it clear that the USD is neither here nor there, broadly speaking, while the commodity dollars, NOK and CNH are the weakest links.
Table: FX Board Trend Scoreboard for individual pairs.
AUDUSD is now tilting lower – but do note discussion above that it is still very much stuck in the range here. USDCAD flipped to a positive trend yesterday. Elsewhere, note sure that I can recall a trend like EURNOK’s reaching 101 days without a cross-over.
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