SEK has traded sideways today rather than rallying, as one would expect, on the strong comeback in risk sentiment. The krona is historically one of the most highly risk sensitive currencies. Sure, the euro is largely stuck in the water here and the EU growth outlook has plenty of clouds over it with covid shut-downs etc, but EURSEK looks “wrong” relative to other reaction to the improved mood across markets, and should be lower. A statement today by Riksbank dove Jansson that it is hard to justify rate hikes and that a more active fiscal policy is the way forward likely held back SEK, as perhaps NOKSEK buying, judging from the last couple of session in that cross.
In other developments, AUDNZD has cleared the important 1.0500 level, EURCHF is trying to pull higher but is still some way from challenging the important 1.0500 level. The CHF has not behaved anything like the JPY in recent months, failing to show sensitive in EURCHF, at least, to large shifts in safe haven years. Likely, to get EURCHF off the mat, we’ll need to see a broader EUR rally that includes EURUSD on a brightening outlook for EU growth. Hard to see how it gets much worse, on a relative basis, at present (covid shutdowns, energy crunch, etc…)
The Bank of Canada is out just after pixel time for this article. The market is leaning for hawkish guidance for a sure rate hike at the January meeting, which is very likely what it will get. The degree to which CAD can continue to rally will also depend on whether the now suddenly very CAD-supportive backdrop extends. USDCAD needs to bash back below 1.2500 to suggest a full reversal of the rally move off the sub-1.2300 lows in October is in the cards.
Looking ahead, the next critical event risks are the Friday US November CPI print, and then the exercise next week in seeing how the market reacts to the crystallization of the now hawkish Fed’s adjustments to its new monetary policy statement and to the “dot plot” of its policy forecasts.
Table: FX Board of G10 and CNH trend evolution and strength
Still mean reverting from the prior trends in most currencies, but far more upside needed from commodity currencies to fully reverse the prior trends.