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USD Retreats In Late Session, NZD Remains Poorest Performer

FOREX
  • The greenback has had a strong turnaround over the latter half of Wednesday trade, with the USD index (-0.4%) now looking set to snap its impressive winning streak in April that has seen the index rise from below the 98.00 mark to the earlier peak of 100.52.
  • The reversal prompting firm gains in EUR, JPY, GBP and the Canadian dollar following the BOC’s 50bp rate hike and accompanying hawkish rhetoric. CAD has had the additional tailwind of higher crude futures and rising equity indices, placing USDCAD roughly 100 points off session highs.
  • EURUSD came within three pips of the March lows and bear trigger of 1.0806, which now marks an interesting inflection point as we head into tomorrow’s ECB rate decision/statement with MNI flagging that markets should be prepared for a potential hawkish surprise.
  • The recent failure at 1.1185, Mar 31 high, continues to highlight a bearish threat and last week’s move lower has reinforced this theme, however, a break of 1.0806 is needed to confirm a resumption of the downtrend.
  • In similar vein, USDJPY has had a sharp turnaround after breaking the 2015 highs earlier in the session. After breaching 125.86, momentum buying saw the pair clear the 1.26 hurdle and trade as high as 126.32. The broad dollar weakness has seen momentum wane and a close back below the 125.86 mark would be considered a bearish development. With trend conditions still residing in overbought territory – the potential for a consolidation and/or move lower may have been bolstered.
  • NZD remains the poorest performing currency in G10 following the RBNZ policy decision overnight. While the bank hiked rates by 50bps against a consensus expectation of a 25bps rise, the decision was perceived as dovish as the bank opted to bring forward the beginning of the tightening cycle, but critically stop short of raising market expectations of a higher terminal rate. The bank's minutes noted that members increased the OCR by more "now, rather than later". NZD weakness followed, putting AUD/NZD at the best levels since mid-2020.
  • Aside from the ECB meeting, Aussie Employment and US Retail Sales will headline the data schedule before the long holiday weekend.
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