Credit Agricole

Asia overnight

Sentiment in Asia continues to be mixed as investors fret over higher rates and China’s zero-Covid strategy. Providing some relief for investors today, however, were lower UST yields on the back of FOMC member Raphael Bostic’s comments arguing for a pause in Fed rate hikes in September. Bostic is a dove and a non-voting member of the FOMC in 2022, however. Most Asian bourses as well as S&P 500 futures were trading higher at the time of writing. In G10 FX, the NZD was the outperformer by a long way on the back of a hawkish RBNZ. The EUR and CHF were the underperformers during the Asian session.

CIBC

FX Flows

Australia Q1 total construction work fell 0.9% against estimates of +1.0%, however, Q4 2021 revision was +0.6% from -0.4%. Another volatile data which did nothing to FX. AU$ slipped back onto 0.70-handle during the early part of the morning despite RBA Assistant Governor Luci Ellis highlighted supply chain disruptions and hinted at further rate hikes. One FX report wrote AU$’s price action was partly linked to North Korea missiles launched this morning, I do not agree. I believe small recovery is linked to the firmer UST yields and small short-covering in the €AU$. As expected, RBNZ delivered 50 bps hike and AU$ brought back to 0.71-handle (only for a while) but capped by AU$NZ$ exits.

Most people were expecting RBNZ to deliver a 50 bps hike and they did. However, some saw base case for 25 bps following recent data. We saw bit of AU$NZ$ buying just before the announcement but these punters got it wrong. RBNZ delivered and they were hawkish when it said it sees OCR rising to at least 3.25% this year. Punters rushed for the exit, AU$NZ$ dropped 0.8% to 1.0929. NZ$, the only way is up, peaked at 0.6500, slipped away about 25-30 ticks. Kiwi 2-year interest rate swap up 12 bps to 3.62%.

$YEN was bought for the fix but has stayed bid throughout the morning session on back of US Treasury yields. Good price action into and also after the fix. Slight selling pressure from Japanese retail accounts whom have been adding to long positions on the way didn’t stay down there for long. Investors turned their attention to the US Treasuries, yields went up and that took $YEN along as well. We understand that the Japanese retail guys are long and likely to fade the move up. The large strikes above have expired, this should smooth the move up and first resistance 128.50.

EUR$ peaked at 1.0694, one reporter noted leveraged names reducing short after market broke 1.0620. We are likely to run into some resistance around 1.0700, nothing much thereafter unless we break 1.0755 then stop buy orders kick in. Despite the ECB hawks yesterday, Asia didn’t pay much attention. It was more about the risk sentiment and EUR$ drifted lower.

Over in UK, railway unions will hold a vote today to walk out of every Tube station on Monday June 6. This will cripple the London Underground when millions of people return to work after the Queen’s jubilee weekend. PM Johnson’s photograph of him drinking with aides at a lockdown-breaking party in No 10 is all over the British media. I wonder what he will say to that? I guess nothing. GBP$ ended the morning lower, in line with the rest.

Weak commodity prices, WTI July contracts ended the morning session lower, $CAD returned to 1.28-handle. Overall, low activity. Only interesting option strike is 1.2870 for $605mio. Later today we shall have the May economic mood index, previously 54.3.