CIBCFX FlowsNew Zealand first quarter terms of trade rose 0.5% over the quarter against estimates of +1.3%. Slight improvement in the previous quarter to -0.9% from -1.0%. Stats New Zealand said export volume fell 7% while import volume fell 2.6%. Little change in the NZ$. Intraday resistance 0.6568 and support around 0.6425. Small option expiry at 0.6500 for NZ$375mio, there is a put strike at 0.6445 due Tuesday for NZ$545mio. Rather muted price action since, we saw a small spike to 0.6488 which was caused by AU$NZ$ but no drama.According to FT, Saudi Arabia indicated to western allies that it is prepared to raise oil production if Russia’s output falls substantially under sanctions. Fears of outright supply shortages have risen after EU launched another round of sanctions which included seaborne cargoes. Oil futures fell, August contract slipped under $109.50 from $111.00. $CAD rose to 1.26745 where we encountered some offers.In our FX Weekly, Bipan wrote it was not surprising that the BoC delivered 50 bps hike, taking the overnight rate to 1.50%. BoC voiced more concern with respect to inflation and that the risk of inflation becoming entrenched had risen. Statement flagged that Canada is now operating in an environment of excess demand – which implies that the output gap is now fully closed. Of course, this necessitates additional rate hikes to bring inflation back to target, and a signal that the Bank could act more forcefully if needed to do so. At the April MPR, Governor Macklem repeatedly mentioned that he saw the policy rate rising to neutral, which the Bank gauges to be around 2.50%. Whether there’s a need for that rate to rise above that level is the question that many will be looking at in the coming months.On the BoC, our economics team sees another 50 bps hike in July, our forecast that we’ll see signs of a growth deceleration by early fall, allowing the BoC to slow to a 25 bps hike in September, and then a pause before a final quarter point to 2.5% in early 2023. $CAD got down to 1.2609 then bounced back up. Our trader Jon believed it was more a US$ move, hawkish comments from Fed speakers Daly, Bullard and Barkin. Bipan said in the near-term, $CAD should keep in the 1.25-1.30 range and in the long-term, the risks are still skewed towards a break higher out of that range.Australia April trade surplus widened to A$10.495bn against consensus of A$9bn. AU$ didn’t benefit from the data, slightly lower from where North America ended. Resistance near the 100-day SMA 0.7229, first support at 0.7150 then 0.7127. Small downside strikes due today, A$430mio at 0.7140 and A$330mio at 0.7100. Keep an eye on the daily charts, potentially a second Death Cross could develop.Fed-BoJ policy divergence back in play, looks like we are likely to tackle the 20-year high soon. After an initial move to 129.89, $YEN came back bid as UST yields rose. Japanese retail traders have all taken profit and some have begun short position. I believe they will add towards previous high 131.35. Strikes at 132.00 for $1.06bn due today.Dull day for EUR$, we have been in this 1.06455-585 since I sat down. Fresh offers noted above 1.0660 which limited the bounce off low 1.0627. Intraday support around 1.0640/42 but think we will extend towards 1.0607. ECB speakers today are Villeroy and de Cos in Paris. Expect some hawkish remarks.Former Bank of England MPC member Andrew Sentance wrote in The Times that the Bank should raise interest rates to 3% next year. He argued that the Bank need to aggressively accelerate pace of monetary tightening to contain inflation pressures. BoE raised rates to 1.0% last month but Sentance said the Bank’s slow response has caused a mismatch between rates and inflation that leaves the economy’s real rate in negative. GBP$ little lower, support at 1.2472 the 38.2%. Decent strike at 1.2450 but this matures next week.CitiEuropean OpenPost the UST bear flattening towards the end of the European session yesterday, markets were relatively calm, and Asian FX volumes slumped 25% compared to 30d averages. G10 FX kept within a tight range to the dollar and UST yields were up just a touch in Asia. Oil prices dipped on the back of an FT report that Saudi Arabia has indicated it is prepared to raise oil production if Russia’s output falls substantially, while equity held steady. USDKRW was up sharply, mostly on a higher open, while USDIDR saw a test of the 14500 support.Ahead, we expect volumes to be light with GBP on a long weekend starting today. USD will listen to Fedspeak today and await initial jobless & continuing claims prior to NFP on Friday. CAD will eye the Economic Progress Report Speech which will be closely watched after yesterday’s hawkish messaging. EUR looks to guidance from ECB speakers ahead of the quiet speaker, while SEK listens to Riksbank speakers. HUF gets their One-Week Deposit Rate, where Citi Economics predicts a hike of 20bps to 6.65%. BRL eyes GDP figures. Lastly, we flag that OPEC+ is likely to stick to a planned 432k bpd increase in oil production in their meet today.
Source: Tickmill