FX Update: The US dollar is trying to break down again

HUF goes vertical on euro optimism and Hungarian central bank guidance suprise. When the outlook is looking more positive for Europe, we would expect satellite currencies to perform well, and that has been the case recently for CEE currencies if less so for the rangebound SEK and NOK. But the action in HUF found an entirely new gear yesterday as the Hungarian central bank surprised with a comment that the policy rate will have to rise to counter inflation and possibly as soon as at next month’s meeting. The market seemed to have smelled some of this coming in the days prior to this, as 2-year HUF swaps had already risen 10-15 basis points, but they tacked on another 13 basis points yesterday on this surprise, and the HUF rose over a percent versus the EUR, back to the lowest level in EURHUF since August of last year. The move makes sense, given the hot 5.1% inflation reading for April in Hungary, and if risk sentiment stays elevated in Europe, there is plenty more room for HUF upside, even if I am skeptical on the ability for HUF to trend higher for more than 2-4% against the euro for now.

CLP lower on constitutional assembly vote – a vote held at the weekend in Chile to provide the constituents for a new constitutional assembly that will draw up a new constitution to replace the one from the Pinochet era, one that is so overwhelmingly left-leaning, that the left bloc won’t even have to face the risk of a veto from the opposition. CLP was already underperforming copper (Chile is world’s largest producer) as the fear was already established of extremely high royalty payments and steeply progressive taxes on big mining companies that would provide little incentive to expand production above a certain price for copper. The development saw CLP gap nearly 3% lower to start the week yesterday and the Chilean stock market was down over 9% yesterday.

Table: FX Board of G-10+CNH trend evolution and strength
In the FX Trend evolution breakdown, the precious metal strength stands out and makes sense in light of weak US real yields and the weak US dollar. Seems like the JPY should be paying more attention to lower real yields as well – but not much of ahead nod there as much of the excitement has centered on commodities and inflation recently, even if the likes of AUD and NZD performance have underwhelmed.

Table: FX Board Trend Scoreboard for individual pairs
The AUDUSD “uptrend” has yet to reverse – what an incredible go nowhere chart… Note the blistering USDCAD reading and that pair approaching 1.2000. I have a hard time getting behind that level if oil doesn’t rally significantly more and very soon. Speaking of oil, disappointing to see EURNOK bogged down above 10.00, given the backdrop.

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