Risk-On Flows Dominate, Yen Resumes Losses

Regional reaction to the Fed's 75bp rate rise, dubbed by Chair Powell as an "unusually large" move, dominated early price action before petering out. Riskier currencies still comfortably outperform traditional safe havens, but the BBDXY recovered from initial lows as cash U.S. Tsy curve bear flattened in Tokyo trade.

• Higher U.S. Tsy yields resulted in fresh demand for USD/JPY, with BoJ bond-buying operations keeping JGB yields in check. The cross crept higher despite technical signals and options markets dynamics suggesting that correction might be in store. Wednesday's post-Fed dip in USD/JPY saw its RSI return from overbought territory, while 1-month risk reversal extended its slump to the lowest point (largest bearish bias) since Mar 9.
• The Aussie dollar topped the G10 scoreboard, despite showing little reaction to domestic data, which fanned hawkish RBA bets. Monthly jobs report testified to acute tightness in the labour market, while consumer inflation expectations soared to the highest level since 2008. Market pricing of July cash rate target hikes stabilised at 56bp after the release vs. ~51bp prior.
• AUD/NZD crept higher but the recent cycle high (NZ$1.1174) remained intact. The upswing was facilitated by weak GDP data released out of New Zealand, whose economy unexpectedly contracted in the three months through end-March. That said, NZD fared well against other G10 currencies amid better risk sentiment.
• Key data releases today include U.S. weekly jobless claims & housing starts. Central bank activity stays in high gear on Thursday, with the BoE & SNB due to announce their rate decisions. Several ECB members are set to speak, while the BoJ begins its two-day monetary policy meeting.