The dust has tentatively settled across financial markets overnight, with risk sentiment making a timid recovery. In this context, the USD has given up only a modest part of the ground made yesterday against all G10 FX peers bar the JPY which has been a clearer underperformer during the Asian session. USD/JPY has indeed returned to 129, while ignoring the flurry of comments made by Japan FinMin Shunichi Suzuki and BoJ Governor Haruhiko Kuroda. The former repeated that rapid FX moves are not desirable, while the latter reiterated that bold monetary easing remains needed, and that linking any eventual exit from this accommodative stance to the end of his term at the helm of the BoJ (in April 2023) was not appropriate. Elsewhere, EUR/USD has slightly retraced to 1.04, while the commodity FX have recovered a tad more overnight. These latest developments still look relatively fragile, as global risk appetite is likely to decide on whether the USD is able to cement solid weekly gains against all G10 FX except the JPY.
Fooled by the Tokyo fix. Early birds sold $YEN hoping for risk-off to resume but was largely disappointed. Japanese banks started to scoop $YEN and the ¥-crosses. The fact that Sunday being May 15, our trader Jon believed that the Japanese corporate will execute their Goto-bi Day interest today. Buying intensified above 128.65 and rose to towards the fix. As expected, four Tokyo banks published their fixing at and above 128.90. Risk-on, Nikkei 225 gained more than 2%, Treasuries sold, 2-year yield above 2.6%, 10-year near 2.9%. Positive sentiment boosted $YEN and the ¥-crosses. BoJ again conducted fixed-rate bond-buying operation. Japanese retail day traders have been accumulating long $YEN will at some point start to take profit, I suspect close to 129.50.
AU$ higher after an initial weak open, risk-on led the pair to 0.68915. Better buying came from AU$¥. But came under pressure after onshore $CNY rose above 6.8000, first time since September 2020. Shanghai Composite Index opened in positive territory, that helped the AU$. Support at 0.6805 then 0.6777, doubt they will be tested but if we do, note AU$1.4bn of 0.6725 put strikes mature today.
$CAD moved lower and we believed this is likely linked to stronger MXN. In post-New York session, Argentinian central bank raised interest rates by 200 bps to 49%. This was followed by Central Reserve Bank of Peru lifting reference rate by 50 bps to 5.00%. We already had the rate hike by Banxico, so we believed investors sold $MXN as a proxy and this sort of dragged $CAD along, orderly manner. Small selling seen above 1.3080, there is a barrier at 1.3100, little of note downside. Strikes at 1.3040 and 1.3050 roll off today.
Price action of the EUR$ was not on its own. At first it was EUR¥ which lent support to the single currency, then $YEN slipping back onto the 128-handle and EUR$ gained to 1.0390s.