CIBC

FX Flows

RBA Governor Lowe spoke at the AFR Business Summit, indicated that it is plausible for cash rate to be raised later this year but RBA has the time to wait and see before acting. AUD$ barely moved, traded narrow range. Even slight risk-on sentiment didn’t do much. We think that there are still ongoing unwinding of EURAU$ which is stalling the AUD$ move up. Nothing interesting in option strikes due today however there is a AU$2bn of 0.7200 strikes due next week.

An oversold EUR$? We shall see. Slight buying of EURAU$ and EUR¥, had the EUR$ firmer over the morning session. Moves past 24 hours are not likely to change global market positioning, IMM are long while leveraged names are short. Small offers noted above 1.0920 and bids nearer to 1.0875. Quite a bit of 1.1000 strikes due tomorrow and next week.

$YEN is bid this morning, we believed Japanese importers have been picking up US$. My Toronto colleague Sean said that Japan imports ~85% of its energy needs. Importers are buying dollars more aggressively as oil prices continue to rise. Japanese retail traders have been fading this $YEN rally, established short position. Option strike at 116.00 due on Friday for about $1.75bn, we could see some gamma play ahead of it.

An interesting piece from WSJ Opinion on US President Biden’s oil embargo - Biden announced the ban on Russian oil and gas imports but at the same time, he declared full-steam ahead on his green energy transition which includes an assault on fossil fuels. This is contradicting. US imports only 3% of petrol supply and less than 1% of coal from Russia. 70% of Russian oil currently can’t find buyers due to sanctions, this is the main reason why crude prices have risen. Once uncertainty is cleared, Russia will probably find buyers for its energy discounted prices. White House is not sanctioning institutions that finance Russia’s energy trade because it fears it could drive gasoline prices even higher. US should support the development of US oil and gas, rescind all regulations to curb production, development and consumption. If that happens, brent crude will fall $20 a barrel.

Not much to share about $CAD. Interesting publication from our economics team - is the Canadian dollar still a petrocurrency, whose fate is steered by the price of oil? That’s worth asking, since oil prices could be swinging wildly ahead, given the developments in Ukraine and US talks with Iran over its nuclear activities. The most recent spike in oil on the outbreak of war created a flight to safety bid for US$ at the expense of other currencies, but the Loonie hadn’t benefited from oil’s gains prior to the threat of war showing up on markets’ radar screens. If the oil-CAD link is broken, that’s of particular importance for our energy sector clients, as they typically take it into account in thinking about overall hedging strategies for both the commodities price and the exchange rate.

Citi

European Open

A tepid optimism on Ukraine/Russian outcome has the some of the highest risk premiums being gradually flushed out of markets. SEK, one of the preferred short proxies, has rallied sharply, outperforming in G10 while USD lags. FX implied vols are lower as longs move from the side-lines to shed some hedges. EUR is a touch firmer, though appears to be entering a tug-of-war between energy prices and the prospects for EU joint bond issuance. In bonds, the Europe driven yield reset on Tuesday has been met with buying from the region both in Treasuries and Aussie bonds. USD Asia has been calm with volumes sliding in NDFs while USDCNH ticks higher as China stocks slide, pointing to foreign outflows.

Looking ahead, focus is on the start of the EU Versailles summit as markets wait for hints on EU financing plans while we see key CPI releases from HUF, MXN and RUB.We note a holiday in Korea owing to national election.