Euro weighed down by waning hopes for peace in Ukraine, kiwi wobbles

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SINGAPORE — The euro was pinned to a

five-week low on Wednesday as prospects for peace in Ukraine

seemed to darken, while the kiwi was whipsawed after New

Zealand’s central bank announced its sharpest rate hike in two

decades to curb inflation.

While the 50 basis point hike by the Reserve Bank of New

Zealand was larger than many economists had expected, it was

within traders’ expectations, and policymakers tempered the move

by not lifting their projected peak for rates.

The Bank of Canada meets later on Wednesday and is also

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expected to deliver its sharpest hike since 2000 as policymakers

around the world start hastening efforts to contain growing

price pressures.

The kiwi flickered as high as $0.6902 after the

Reserve Bank of New Zealand lifted its official cash rate (OCR)

to 1.5%.

But the currency recoiled from resistance around its 200-day

moving average, and was last nearly 1.5% below its intraday high

at $0.6811, as the central bank framed its actions as pulling

forward hikes without changing its outlook.

Analysts reckoned support for the currency might be

shortlived.

“It’s sort of a dovish 50-point hike,” said Jason Wong,

senior markets strategist at BNZ in Wellingon.

“They’re saying it’s just a bringing forward of a hike and

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the RBNZ hasn’t really changed it’s view on the OCR outlook from

the February statement,” he added, noting that the market has a

far more hawkish peak rate forecast than the central bank does.

Elsewhere, traders were unmoved by a slight stiffening in

Japanese officials’ language about the fast-weakening yen, which

was under considerable pressure at 125.60 per dollar, within a

whisker of breaking a major support level at 125.86.

Finance Minister Shunichi Suzuki said the government was

watching currency moves with a sense of urgency.

The yen had enjoyed a moment’s respite overnight when

cooler-than-expected U.S. inflation data set bonds rallying and

investors hoping that price pressures might have peaked.

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A second straight monthly decline in prices of used cars

held core CPI to a 0.3% gain in March, against an expected 0.5%

rise. But, since headline annual inflation nevertheless came in

at an eyewatering 8.5% and rapid rate hikes still loom, it

wasn’t enough to drive investors out of dollars.

Russian President Vladimir Putin’s description of on-and-off

peace negotiations as “a dead-end situation” on Tuesday also put

a weight on the euro and sterling, which have been vulnerable to

concern about the war’s economic fallout.

The euro dropped to $1.0821 overnight and hovered

nearby at $1.0835 in the Asian session. Sterling, which

has been pegged near $1.30, held at $1.3001.

The Australian dollar and Chinese yuan also

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weakened slightly after a surprise plunge in China’s imports

added to investor worries about weakening demand.

Dollar denominated imports fell 0.1%, the first drop since

August 2020, against expectations for a rise of 8% and the

Aussie wobbled 0.1% lower to $0.7445.

The yuan inched marginally lower after the data

to hold steady for the day at 6.3661 per dollar.

The Canadian dollar firmed through its 200-day

moving average to C$1.2614 in Asia, though traders are jittery

ahead of the Bank of Canada meeting, especially as the market is

slightly short USD/CAD.

“I think the risk around the Bank of Canada meeting is that

they sound balanced enough to trigger a wipeout of USD/CAD

shorts,” said Brent Donnelly, president at analytics firm

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Spectra Markets.

Policy decisions are due in Singapore and Europe later in

the week.

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Currency bid prices at 0518 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0832 $1.0826 +0.05% +0.00% +1.0840 +1.0812

Dollar/Yen 125.6550 125.3550 +0.15% +0.00% +125.7200 +125.3550

Euro/Yen

Dollar/Swiss 0.9329 0.9324 +0.05% +0.00% +0.9338 +0.9324

Sterling/Dollar 1.3000 1.3000 +0.00% +0.00% +1.3014 +1.2987

Dollar/Canadian 1.2628 1.2641 -0.09% +0.00% +1.2642 +1.2611

Aussie/Dollar 0.7444 0.7455 -0.15% +0.00% +0.7475 +0.7443

NZ 0.6818 0.6850 -0.46% -0.38% +0.6901 +0.6810

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook;

Editing by Shri Navaratnam)