THE DOLLAR was much firmer to start the week in risk-off trade, printing a new 2022 YTD peak of 101.860 and at levels not seen since March 2020. Participants focused on the COVID endemic in China as Beijing will expand mass testing for COVID to 12 districts out of 16 from Apr 26-30th, alongside the Shanghai daily COVID death count rising.
Looking ahead, participants remain wary of Ukraine/Russia updates as on Monday, according to RIA, Russian First Deputy Envoy to the UN sees no point in a ceasefire in Ukraine "at the moment".
Furthermore, the US earnings season is well underway with large-cap names, such as AMZN, GOOGL, MSFT, and AAPL, all reporting this week which may provide some market direction as the Fed is on blackout ahead of the FOMC meeting on May 4th
High Beta Currencies were lower against the surging Greenback, primarily on the risk-off sentiment AUD was the clear underperformer, whilst its NZD counterpart was the relative 'outperformer', but still saw losses. CAD and GBP were somewhere between, with the Pound seeing more pronounced weakness.
Firstly, the Aussie will be looking for some reprieve when market participants return from the ANZAC Day holiday, which kept markets very thin. Nonetheless, the AUD/USD hit a low of 0.7136, a level not seen since 24th February 2022, whilst NZD/USD reached a trough of 0.6583, a level not seen since 1st February 2022.
HAVENS, CHF and JPY, were mixed with the Yen the distinct GIO outperformer and only currency in the green against the Buck. The Yen benefited from the souring risk tone and the lower US yields, which came amid fears the Fed and other central banks' tightening to fight inflation will weaken risk assets and pandemic recoveries, particularly with China's lockdowns.
As such, USD/JPY hit a low of 127.53, with techs noting a close below the IODMA of 127.216 and the 19th April low of 126.98 could target props by 125. Looking ahead, the critical BoJ rate decision on Thursday is due, where the central bank is likely to maintain rates at -0.10% and its QE with yield curve control to flexibly target 10yr JGB yields at 0.0% +1- 25bps.
EURO was lower on Monday irrespective of a surprisingly strong German Ifo, which surpassed expectations and hawkish- sounding rhetoric from ECB's de Cos. Additionally, French President Macron being re-elected had little impact on the single currency. The China demand shock drove the selling.
• DXY remained firmer and was unfazed by the softer yields and improvement in risk appetite.
• Euro weakened and briefly touched the 1.0600 handle against the greenback despite firmer IFO data.
• GBP lost ground to the dollar and tested 1.2700 to the downside before rebounding alongside risk.
• JPY was choppy in which USD/JPY traded both sides of 128.00 as early haven flows eventually waned.
• CNY continued to soften with the PBoC FX RRR cut doing little to stem the recent weakening trend.
Fears continue to grow over further targeted lockdowns after daily deaths in Shanghai rose, again, whilst Beijing is concerned about its rising case count. As such, it was confirmed Beijing would expand mass testing for COVID to 12 districts out of 16 from April 26- 30th. Over the weekend, Beijing's Chaoyang district announced it would require residents and workers to undergo three COVID tests this week, while Beijing ordered residents in a specific COVID-affected area in Chaoyang not to leave the area.
• Oil prices declined as China's burgeoning COVID situation and subsequent cuts to demand outlooks offset the supply/geopolitical premia out of Russia, although pared some of the losses into the settlement.
• US Energy Secretary Granholm said US oil and gas production is increasing and will continue to increase, while she added that Imln-1.Smln barrels of Russian oil are off-market, according to CNBC.
• Kuwaifs KIPIC said the first Al Zour refinery will begin operations in a few weeks, according to the state news agency.
• CME is to cut the daily trading limit on CBOT Wheat futures to USD 0.70/Bu from 0.80/BU on May 2nd, but raise Corn and Soybeans limit to USD 0.50/Bu and USD 1.15/Bu from 0.35/Bu and 0.90/Bu, respectively.
The Week Ahead
Highlights include US PCE, US Employment costs, US Advance GDP, EZ Flash CPI, Aussie CPI, BoJ, Riksbank, CBR. To download the report, .
(US TIMEZONES) [TUES] UPS, PEP, RTX, TXN, GOOGL V, MSFT; [WED] AMT, TMUS, BA, AMGN, QCOM, FB, PYPL; [THURS] IMO, LLY, MRK, CAT, MCD, CMCSA, MA, INTC, AMZN, AAPL; [FRI] AZN, HON, CVX, BMY,
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