CIBC

FX Flows

Fed Barkin spoke but it wasn’t him that moved the US$, UST yields climbed, 10-year rose above 2.74% and that encouraged US$ buyers. Witness $YEN demand for the fix got the pair to 125.645. For the rest of the morning $YEN did little and clung on to the top of the morning’s range.

The RBNZ raised OCR by 50 bps to 1.50%, most participants were looking for 25 bps. RBNZ indicated it’s worried that inflation is getting out of control. The board agreed it is appropriate to continue to tighten monetary conditions at pace to best maintain price stability and support maximum sustainable employment. We saw good buying from various names ahead of decision, NZ$ jumped to 0.69025 on the rate hike before slipping back as front-end yield started to slip. According to Patrick Bennett, Kiwi OCR end of year pricing is now 3.15% versus 3.30% yesterday. Are we done yet? Focus turned to RBA and this pushed the AU$NZ$ up to 1.09-handle, NZ$ slipped to 0.6852.

Hike in OCR caused the AU$NZ$ to fall to 1.0830 from 1.0860. Then a sudden turnaround, the cross popped back to 1.0875. I believe that the market now sees more pressure for the RBA to react in the June meeting. AU$ has firmed up since the Tokyo fix rose to 0.7475. There should be some offers above 0.7490, bids sitting at 0.7400-10.

EUR$ saw a modest bounce after reaching low 1.08115. Earlier pressure came from higher $YEN. We believe there was bit of €YEN buying for the fix which lifted EUR$ off the low. I also suspect there are real demand for EUR$ below 1.0810, due to fresh put option strikes at 1.0800. Rumour of offers hovering above 1.0850. ECB meets tomorrow, no change expected but lets hear what the Governing Council has to say.

Bank of Canada meets today, many including ourselves, calling for 50 bps rate hike. We have seen strong data coming out, unemployment rate at a record low and wage growth starting to accelerate, most investors and commentators assume that the Canadian labour market has moved past it’s non-inflationary potential and that we have reached, or breached, full employment. Interesting that colleague in New York, James had conducted some client calls with Bipan, Bipan thinks that the BoC is too aggressively priced.

With Canada 1y OIS swap 1y forward and US 1y OIS swap 1y forward roughly the same, the market is not taking into account that the US and Canada's sensitivity to higher rates is completely different - Canadian households are much more highly levered. There were discussions about strategic ideas - Bipan likes 6-month $CAD 25d-10d call spreads. James said he had some interest earlier in 3-month $CAD call spreads, client buy the call spread, and sell a put against it to finance it.

Citi

European Open

NZD popped higher in a knee-jerk move after RBNZ become the first G10 central bank to hike rates by 50bps this cycle. The signal of front-loaded hikes and reference to February’s OCR plot (which is much less aggressive than market pricing) drove a strong rally in 2-4y rates and saw NZD as worst performer in G10 on large volumes. CAD outperformed on hopes a similar size hike later today. Overall G10 was calm, with USD flat-lining as overall activity ran at around 80% of normal, and as a low as 50% for JPY. Tech-FX saw strong tailwinds from stock rebounds, while CBC reiterated the tightening policy direction which saw TWD FWDs under pressure.

Central bankers are the main focus as following the NZD, we see CAD (+50bps Citi) expected to hike by the same magnitude, a speech for JPY, and minutes for CLP. GBP sees CPI release in the final top-tier release of the week.USD watches PPI data, while SEK and ARS take less note of inflation sentiment and data of their own. Elsewhere, PLNtrade balance and current account details, respectively, while BRL looks for a slight improvement in retail sales, and EUR prepares for industrial production data. Markets will be closed in THB for Songkran Festival (Wednesday-Friday).