FX Update: JPY rally a choppy affair. RBNZ surprises with big hike.

FX Update: JPY rally a choppy affair. RBNZ surprises with big hike.

Forex
John J. Hardy

Chief Macro Strategist

Summary:  A chop-fest across much of FX since yesterday, after a weak US job openings survey jolted US yields lower, triggering a steep rally in the JPY, which has faded in places in today’s trading as yields have chopped back higher. The RBNZ surprised overnight with a large hike, and while AUDNZD has been pounded to new cycle lows, NZDUSD is actually lower than where it traded before the RBNZ decision.


Our Q2 Outlook, titled The Fragmentation Game is now out.
Today's Saxo Market Call podcast
Today's Global Market Quick Take: Europe from the Saxo Strategy Team

FX Trading focus: JPY resets higher on US treasury yield drop after weak US job openings data. RBNZ surprises with big hike, sends AUDNZD to new cycle lows.

The February JOLTS job opening survey in the US surprised with a reading of 9.9 million jobs, over half a million below expectations and with a -260k revision to the prior number. It shouldn’t have garnered the scale of reaction it got, but that just shows how sensitive the market is here to anything confirming fears of an economic slowdown. As I discussed in this morning’s Saxo Market Call podcast, the JOLTS survey quite noticeably lagged the nonfarm payrolls change cycle in the prior two “normal” recessions in 2001 and 2007-08. Luckily, we have plenty more US data to entertain us over the coming week, including today’s March ADP payrolls change and March ISM Services, tomorrow’s latest weekly initial jobless claims number, Friday’s March jobs report and the March CPI print next Wednesday.

With the plunge in yields and risk sentiment finally wobbly rather than celebrating the drop, the JPY has ideal conditions to make a statement, which it about 50% did – pulling sharply higher versus the US dollar, but merely bouncing back from weakness elsewhere. To get more upside in JPY we’ll need to see the US 10-year sticking new cycle lows below 3.25% and for the global growth outlook and risk sentiment to deteriorate, with a helpful push back lower in crude oil prices possibly also on the wish list. For now, the USDJPY is still “underperforming” to the downside relative to its traditional coincident indicator, the US 10-year treasury yield, which closed at its lowest level for the cycle near 3.35%, if several basis points above intraday lows during the recent banking turmoil in March.

Broad weakness in the US dollar yesterday was partially reversed on weakening risk sentiment, and key individual USD pairs reversed entirely in the European session today. AUDUSD has been pounded back below 0.6700 (in part on AUDNZD flows – more below) even after RBA Governor Lowe was out overnight trying to position this week’s hold on further interest rate increases as not necessarily a lead-in to eventually cutting rates: “The decision to hold rates steady this month does not imply that interest rate increases are over,” and  “Indeed, the board expects that some further tightening of monetary policy may well be needed to return inflation to target within a reasonable timeframe.” The

Chart: AUDNZD
The opposite impressions drawn from the RBA and RBNZ meeting this week have triggered a sharp slide in AUDNZD, as the RBNZ waxed hawkish and surprised with a 50-basis point hike overnight, with no indication that it is guiding for a pause. The larger hike from the RBNZ immediately transmits into the yield spread, which for the 2-year swaps has now dipped to within 10 basis points of the lowest weekly close since the 1990’s at -162 basis points. RBA expectations for the coming few meetings are flat, while about a single further 25 basis point hike is priced in for the RBNZ despite the overnight 50 basis point move (25 basis points only was expected – also by me, and I was even leaning for a guidance shift). In the coming one or possibly two quarters, I suspect one of the central banks will be seen as having committed a policy mistake, whether it is Australia in having moved too cautiously as it seemed to want to avoid too much transmission of policy into slowing the economy and household budgets, or the RBNZ having taken things too quickly and causing a more disruptive unwind in the housing market and perhaps the wider economy (or is it a recession by design?). The March CoreLogic NZ home price data showed home prices declining at a record -10.5% YoY clip, just “eclipsing” the -9.7% low of the 2008-09 cycle. But note that we are coming off peak home price rises of higher than 25% YoY in late 2021 and into early 2022. AUDNZD is working down into its minimum valuation region assuming the policy divergence can't stretch much wider from here.

Source: Saxo Group

Table: FX Board of G10 and CNH trend evolution and strength.
Note the strength in gold and especially silver here – it this a vote of no-confidence in fiat currencies generally? I suspect it is… Otherwise, while sterling sits at the head of the class in relative strength among G10 currencies, it is difficult seeing it retaining that status if broader sentiment is primed for a setback. The JPY should have room to “roar” soon if this decline in yields continues and is accompanied with the coincident concern for the global outlook (weaker risk sentiment).

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
The AUDUSD reversal back below its 200-day moving average suggests the end of the recent breakout attempt to the upside. NZDUSD reversed badly today as well after the RBNZ shocker goosed the price action to 0.6379 overnight – trading below 0.6300 near the time of this writing.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1215 – US Mar. ADP Employment Change
  • 1230 – US Feb. Trade Balance
  • 1230 – Canada Feb. International Merchandise Trade
  • 1345 – US Mar. Final S&P Global Services PMI
  • 1400 – ECB Chief Economist Lane to speak
  • 1400 – US Mar. ISM Services
  • 0130 – Australia Feb. Trade Balance
  • 0145 – China Mar. Caixin Services PMI

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992