Credit Agricole

Asia overnight

Retreating USTyields and expectations for monetary policy easing in China both helped investor sentiment in the Asian session. UST yields are in modest retreat following the below-consensus US core inflation reading on Wednesday. China’s policymakers have indicated looser monetary policy is on the way. Most Asian bourses as well as S&P 500 futures were trading higher at the time of writing. The USD followed UST yields lower and was the underperformer in the G10 FX space and a short position squeeze led to the NZD outperforming.

CIBC

FX Flows

Bit of €AU$ sold since the open, the cross fell from above 1.4620 to 1.4590. This lifted the AU$ up from 0.7445 to 0.7466. AU$ got a push back as the UST yields ticked up above 2.71%. Australia’s March labour report came out lower than expected, employment change was +17.9k versus estimates of +30k. It looks like the March jobs data has been affected by the recent floods. AU$ declined to 0.74455. Nothing interesting in terms of option strikes for today, I do believe there are bids close to 0.7400 and small disaster above 0.7470. Remember, huge dividend payment coming up next week April 21.

EUR$ started the day weak, bit linked to €AU$ that pushed the single currency to 1.0883. US$ weakened across the board and EUR$ surfaced above 1.0900. Participants are reiterating the pair being oversold and diverging daily RSIs. There is a talk of 1.0800 barrier protection. Potential double bottom if the upward momentum continues. ECB in focus today, with hikes of 70 bps priced in by year-end and rates stopping near 1.5% next year EU inflation came in at 7.5% in March, with a peak still seen months away, thus investors will scrutinize today’s meeting for hints of more deliberate policy normalization policy.

In the Reuters corporate survey, 31% of Japanese firms said it is hard for their business to cope at ¥125 to the US$ while 45% said it is hard for their business to cope at ¥120. 48% see profit hit from YEN weakness while 23% see boost. $YEN has been stable most of the morning until a break below 125.20 where we believe triggered some weak stops, probably prompted some traders to exit long positions. Nothing from Governor Kuroda today, intraday support kicks in near 124.75-80 while profit taking only near 126.00.

2-year yield spreads between US-CAD turned positive, favouring CAD. The Loonie strengthened to 1.25465. On the BoC this is what Bipan said, the market is already priced for most of this. The move lower in $CAD, post the decision, feels fishy considering that CAD rates are still performing. As such, we’re inclined not to trust the move in the exchange rate, nor view it as being led by the Bank’s decision. The one item that did catch us a bit off guard was that BoC raised its estimate of r-star to 250 bps which supports market pricing for terminal in the here and now, but as our colleagues in rates strategy point out, we have a hard time seeing the Bank move much beyond neutral when the time comes. In the near-term, Bipan sees the $CAD range 1.24-1.27 over the coming weeks ahead of Fed.