CIBC

FX Flows

Kicking off Asia, New Zealand released Q1 labour reports, numbers were mostly in line with estimates, average hourly earnings rose 1.9% as supposed to estimate of +1.4%, slight down annual employment change as well as participation rate 70.9% from 71.1%. However, some revisions made to previous quarter, quarterly employment change was flat from +0.1% while yearly was +3.5% from 3.7%. NZ$ just few ticks lower.

Our macro strategist Jeremy said following the RBA proving more activist than expected at the meeting we remain on watch for additional policy tightening. A compression in official spreads between the RBA and RBNZ, expect the spreads to dip inside 100 bps prior to year-end, underlines interest in relative value trades such as AU$NZ$. We look for a test towards the 2018 high at 1.1176.

Aussie March retail sales bumped up 1.6% against expectations of +0.5%. However, the quarterly sales was unchanged and this prompted a FX reporter to comment that softer quarterly retail sales than expected carries a risk of seeing some downward revisions of Q1 Aussie GDP which will be released on June 1. AU$ firmed from where New York closed, trading has been light. We hear light buying beneath 0.7080 and offers atop 0.7120s.

The Times shadow MPC is urging the BoE to double the pact of interest rate hikes to 50 bps this week to maintain credibility in the face of surging inflation. 6 our of 9 shadow members backed an aggressive lift in rates to 1.25% from current 0.75%. Market expectation is 25 bps hike. Diverging Fed-BoE rate outlooks remained a hindrance to Cable gains. BoE would need to take a page from the RBA and deliver a hawkish rate move otherwise, GBP$ could test the recent 2022 low.

Quiet in EUR$, not much to pen about. Market is currently pricing in 22 bps for July and 93 bps for 2022. Note that there are total of €3.4bn worth of 1.0600 strikes rolling off Thursday and Friday.

$CAD has been offered especially after what BoC Deputy Governor Rogers said last night. Money managers added pressure, selling in the 1.2830s.

Citi

European Open

A quiet day in the Asian session, with several markets in the region closed for holidays. G10 volumes were seen to be much lower today, with JPY volumes seeing the greatest declines. Notably, fixed income was on the move in antipodean countries. Aussie bonds continued to be under pressure, following the RBA yesterday, while NZD bonds were weighed down by another strong labour report. AUD saw a slight increase, supported by a jump in March retail sales. Elsewhere, oil markets tilted higher in Asian trading after declines yesterday, while equities remained flat.

All eyes will be on the FOMC decision today, where Citi Economics expects not only a 50bp hike but also hawkish indications in the press statement and press conference that will add upside risk to its current policy rate forecast. The European session will welcome Eurozone retail sales, which will be watched in light of slowdown concerns. Meanwhile, BRL will see a selic rate decision late in the NY session. Citi Economics maintains the view that Copom will likely increase the Selic rate by further 50bps (to 13.25%) in June and expects hawkish tweaks at this meeting as Inflation continues to run at double-digit levels.