CIBC

FX Flows

Tokyo saw its inflation accelerated to highest in near 30 years in April, Bloomberg said this was largely dur to soaring energy prices. One reporter noted that strong connection in Tokyo CPI to the national CPI which will be published on May 20. A similar boost will complicate BoJ message on inflation. Japan reopened today, UST yields ticked up and investors bought $YEN. Offshore $CNH took out the 6.7000 and it was nasty, sharp move to 6.7140, then above 6.7300, helped push US$ higher.

According to our trader, Vaibhav said not surprising that over the first hour of bond trading we witnessed better selling interest from Japan and seems like there has been more away. We have therefore reversed some of the late day strength seen in New York but I won’t be surprised if yesterday’s lows get tested in our session ahead. 10-year UST yields rose above 3.07%.

RBA published it quarterly SOMP and said it will need to raise interest rates further as unemployment is forecast to drop to the lowest level since 1974, fuelling wages growth and underpinning inflation. RBA also revised up forecasts of inflation this year at 4.6%, well above the 2-3% target band. However, RBA sees inflation lower mid-2024. AU$ slipped on back of $CNH move, got down to 0.70825 and then buyers surfaced, suspect linked to 0.7100 strikes maturing today and Monday total AU$1.7bn.

EUR$ got to 1.05175 but somehow limited bounce despite the hawkish ECB comments overnight. Some rumour that small gamma play linked to downside strikes from 1.0520 to 1.0500. Market is expecting a weak German March industrial production, out at 2.00 pm Hong Kong.

Citi

European Open

The Asian session seemed muted, but there were undercurrents present ahead of payrolls today. UST yields pushed higher in Asia, while overnight losses in equities have spread to Asia. Tech-related FX in KRW and TWD have struggled as a result. THB opened substantially lower, although our trader noted no unusual flows. In G10, JPY was the worst performer as rate differentials came into play. AUD saw the SoMP confirm the RBA’s trajectory towards more rate hikes, for which the market is already well priced. CNH broke above the 6.70 handle that was closely watched.

Looking ahead, payrolls for USD and CAD will feature prominently. We will also keep a close eye on SEK’s Riksbank minutes and EUR data in the form of Germany IP and retail sales, in addition to ECB speak. GBP will see BoE officials speak, which may add colour to yesterday’s decision. Over in EM, TWD, BRL and CLP see inflation prints, while MXN sees Gross fixed investments data.

USD

USD trades on payrolls data at 13:30 BST for April. Citi Economics expects a continued slowing in the monthly pace of job gains in April, with nonfarm payrolls rising by 360k. Average hourly earnings should rise 0.5%MoM and 5.5%YoY in April, although with risks of an even larger increase in our view. We expect the unemployment rate in April to fall modestly to meet the pre-pandemic low of 3.5%, with roughly balanced risks. We also have Fed’s Williams on the agenda at 14:15 BST and Fed’s Bostic at 20:00 BST, though only the former may influence price action in the near-term.