CIBC FX Flows: FXWW

From the FXWW Chatroom: It was dull open without New Zealand. Risk appetite improved as rest of Asia walked in. JPY crosses were given a “like”, yields of UST firmer and Nikkei in positive territory.
USDJPY spent the first three hours 109.45-50, and then slowly, crept higher when Asians walked in. JPY crosses bought – lifted USD to 109.70’s. Offers are mentioned from 109.90 to 110.10.
New Zealand market is closed today, NZDUSD traded 0.6980-86 since. Support at 0.6960, which held last Friday after NFP. Intraday offers heard 0.6990-0.7010.
Melbourne Institute May inflation rose 2.1% annually, a tick higher than previous month but well below 2.8% last May. Patrick Bennett said RBA had anticipated last year that readings would come lower as base effects worked through and so they have. RBA also noted that growth is firm and excess capacity being used up, thus inflation expectation to also tick higher. The next move for RBA is up, question is when. Though we expect either a hike or are confident that pricing of one move by end of 2018. Patrick does not side with idea that consumer debt or housing will stay their hand. Even if they do, they would exacerbate not solve the problem. Moreover, rates are currently historically very low.
Aussie dollar was firmer, largely on back of risk-on. Better than expected April retail sales sent AUDUSD to 0.7597, strong resistance at 0.7600, we haven’t been had a clear break higher since April 23. Downside bids are told under 0.7530. FWIW, we have AUD2.6bn of 0.7500 strikes maturing this week.
EURUSD edged higher on EURJPY buying. Prior to official open, we saw decent bid placed at 1.1655. Think this pair is still trapped in range 1.1620-1.1720. Our macro strategist Bipan Rai is sticking to his call on long EUR. In his note, EUR selling took on a more portentous tone once questions about Italy’s commitment to fiscal discipline and the EUR itself took hold. However, the bottom looks to be in place for EURUSD. Why? For one, the ‘Quitaly’ story has played out for now. Second, the no confidence vote in Spain passed, but there’s no real appetite for a EUR exit. Third, concerns over the Eurozone economy are overblown.
With AUDUSD edging to 0.76-handle, USDCAD was sold off from 1.2950 to 1.2931.
Asia and EM

Besides trade, tension between US and China is also growing over South China Sea. US Defence Secretary Jim Mattis said on Saturday that United States will “compete vigorously” with China’s actions in the South China Sea if needed. Speaking at the Shangri-La Dialogue in Singapore, Mattis said China’s policy in the South China Sea stands in stark contrast to the openness our strategy promises, it calls into question China’s broader goals. Speaking at the same conference, China’s Lt Gen He Lei said: “Any irresponsible comments from other countries cannot be accepted.”
Some specs tried to take USDCNH higher but fruitless. China fix was in line with expectation and USDCNH stuck in this 6.4120-60 range.
Over the weekend, Moody’s said to review Turkey’s credit rating for downgrade. On Sunday, Turkish Economy Minister Nihat Zeybekci slammed credit agency statements on Turkey’s economy and banking system, accusing them of behaving purposefully. USDTRY didn’t move higher, in fact drifted lower to 4.6420.

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