22 April 2022 - USD demand saw the AUD trade to a low of 0.7365.


Market Headlines

Wall St was lower overnight as U.S yields returned to their recent highs. The NASDAQ fell 2.1%, while the S&P 500 closed 1.5% lower. Further hawkish rhetoric from FOMC Chair Jerome Powell drove a 8bps rise in 10 year yields which closed at 2.91%. The higher yields and softer CNY drove broad based USD demand and saw the AUD trade to a low of 0.7365.

The ASX was 0.3% higher on Thursday, an 8-month high, with industrials and real estate leading the gains. AUD/USD climbed from lows of 0.74215 to finish the Asian session at 0.74585 highs. NZD CPI came in slightly below expectations, despite making a 32-year high, which saw NZD/USD shed 30pips, with NZDAUD testing 1.10. European equities gained on the open with Euro Stoxx 50 +1%, FTSE100 flat and CAC 40 up 1.4%. The 10-year Treasury yield advanced 4bp to 2.87%. Crude rose 0.8% to $103.04 a barrel.

EUR/USD found a bid early in the London session reaching highs of 1.0936, on comments from European Central Bank (ECB) member Michael Munsch that the policy rate could turn positive this year. This was followed by ECB’s Vice President Luis de Guindos comment that mentioned a hike is possible in July depending on data. Markets are now betting on 3 0.25pt hikes from the ECB this year. Following the open, demand was light as markets awaited comments from Fed Chair Jerome Powell and ECB President Christine Lagarde at the IMF conference later tonight.

US weekly jobless claims were generally positive with initial claims largely unchanged at 184k as generally expected while continuing claims fell to $1.417m to beat estimates of $1.459m. The Philly Fed Business Survey for April fell to 17.6, down from 27.4 and below expectations of 21.4. Little reaction to the data. Released later in the session, the March Leading Index printed at 0.3% as expected while EU Consumer Confidence for April rose to -16.9, up from -18.7 and better than forecasts of -20.0.

Fed Chair Powell hit the news wires over the NY afternoon, saying it was “absolutely essential” to restore price stability and it was now appropriate to move more quickly with a 50bp hike on the table at the May FOMC meeting. Wall St remained under pressure with the NASDAQ closing -2.1%, the S&P 500 -1.5% and the Dow

Currencies

There was little respite from the USD bid tone into the NY afternoon with the commodity currencies the hardest hit. The AUD dropped to 0.7365 lows while NZD/USD fell to 0.6727 and USD/CAD rose to highs of 1.25905. Other majors consolidating above their respective lows.

EUR/USD continuing to outperform and hold near 1.0850 on the back of some Lagarde commentary in which the ECB chief said that EU inflation numbers were very high and may be double the target at the end of the year. She mentioned inflation must be addressed in a gradual way but hinted at ending APP in June and deciding on a potential rate path.

GBP/USD fell to 1.3023. USD/CAD moved up to 1.2512 with USD/JPY ticking up towards 128.60. EUR/USD falling towards 1.0840 though holding well above earlier daily lows to generally outperform.

Currency ranges over the last 24 hours

Source of data Macquarie Morning Report

Market Outlook

Another quieter day ahead with little in the way of market moving data on the radar.

The CNY fix will once again be in focus with the depreciation of the CNY is putting pressure on other Asia currencies. The KRW, JPY, and AUD were all lower overnight. The weaker CNY may also be giving the shakes to EM currencies, such as the ZAR. The EUR might have been feeling the brunt of a weaker CNY too, after initially rallying overnights on comments made by ECB officials, who are sticking to the more ‘hawkish’ tone that prevailed in the ECB Minutes issued on April 4.

The choppy trading conditions continued for the AUD/USD overnight as it finished at the lower end of its 0.7365/.74585 range. Demand is expected ahead of 0.7340 and again at 0.7315 while offering interest should emerge ahead of 0.75c.

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