CIBC

FX Flows

Deputy Governor Hawkesby said RBNZ is forecasting a period of subdued consumption as higher rates impact some households, given that global and domestic risks, a recession is well within the realms of possibility. He added the economy is well placed to cope with high interest rates. New Zealand’s building permits fell to -8.5% from +6.2%, this is a volatile number but not market mover. NZ$ was bought at the beginning for NZ$¥. NZIER said RBNZ will raise OCR by 50 bps in July. However, things turned when US$ was bought across the board. Business confidence continue to decline in May to -55.6 while activity slumped to -4.7. NZ$ was pushed to 0.6525.

Our macro strategist Patrick said his preference is to sell into any NZ$ rally with stop above 0.6625, the 50% retracement of the 0.6217-0.7034.

Discussion within the desk, our trader Jon believes the RBA will be less aggressive than the RBNZ when comes to rate hikes. He prefers to short AU$NZ$. Spread between the 2-year AU-NZ yields also suggesting lower cross. Fade the rally to 1.1014 with stop above 1.1070.

AU$ rose to 0.7103 after the Tokyo open then declined to 0.7163. China’s PMIs improved in May and this boosted the AU$ and the crosses. Good resistance around 0.7200-05 area, furthermore Death Cross developed in the daily chart. The only notable option strike is at 0.7171 for A$1.12bn due tomorrow.

Month-end and the Japanese bought $YEN and the YEN crosses, only selling came from the retail day traders, who were taking profit. One US bank issued a note today that US$ has turned and exited its short $YEN position. They could be right because the momentum has been consistent past week, $1.2bn of options strikes at 127.50-55 due tomorrow should offer some support.

European leaders have agreed to partial ban on Russian oil, sanctions would forbid the purchase of crude oil and petroleum products from Russia delivered to member states by sea but include a temporary exemption for pipeline crude. This covers more than 2/3 of oil imports from Russia. EUR$ backed off on back of stronger US$. Trendline resistance at 1.0799, likely to see some sellers emerge and stops 1.0855 thereafter. There are fair amount of downside strikes due today to take note of. Although distant, they are quite sizeable. More than €8.1bn worth of strikes 1.0590-1.0600.

Oil futures are up but the greenback rules over the Loonie. Initial purchase of CAD¥ pressured the $CAD to 1.2653. Once that was done, the pair reversed back towards 1.2680s. Our macro strategist Bipan said the move below the 1.2700 handle suggests that we need to relax our call for a move to the 1.33 area for now. We still see price action resolving higher and above 1.30 over time, but we’ll need to be patient with that view. In the near-term, we expect levels to gyrate between 1.25 and 1.30. Also, the lack of an immediate catalyst this week suggests that the risk/reward in receiving OIS for BoC dates isn’t there. While we think terminal will reprice lower, and the Bank won’t go as aggressive as the market is pricing, we don’t envisage that to be the message at this week’s BoC.