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USD Grinds Higher Extending Friday’s Sentiment, JPY & EMFX Underperform

  • Currency markets had a similar feel to the end of last week on Monday as the post-payrolls relief rally for the greenback extended which sees the USD index registering gains of around 0.6% approaching the APAC crossover.
  • With little data on the docket and an vacant speaker slate, the price action was uneventful as the USD steadily climbed throughout US trade. With core fixed income continuing to drift lower in the as markets reassess terminal rate pricing higher, the Japanese yen is among the worst performers in G10.
  • This comes alongside overnight reports in the Nikkei that cited current BoJ deputy governor Amamiya as the name-in-the-frame to take over from Kuroda in a few months' time. Despite very swift denials from government spokespeople, markets have taken the prospect of an Amamiya adminstration as a signal of continuity for ultra-easy policy. USDJPY climbed as high as 132.90, within close proximity of touted resistance at 132.96, the 50-day exponential moving average.
  • While other major currencies declined with a similar magnitude to the USD move, emerging market currencies were notable victims of the greenback squeeze.
  • In CEEMEA, USDHUF (+2.20%) and USDZAR (+1.00%) are standouts and in LatAm, both the Mexican and Colombian pesos have come under further pressure. USDMXN is now roughly 4% above last Thursday’s low, which notably was a new marginal low from February 2020. Today’s break of 19.11 strengthens a bullish theme and signals scope for a stronger short-term recovery, towards the 19.40 handle initially with the December highs around 19.90 marking a more significant chart point.
  • The RBA kicks off Tuesday’s overnight docket where it is widely expected to hike rates 25bp to 3.35% given the elevated Q4 CPI data. Thus, the focus is likely to be on any change in tone of the statement and indications of how the RBA's forecasts have changed.

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