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[MARKET ANALYSIS] DXY rebounds, Kiwi leads and EUR weaker on cooler than expected German, French and Spanish inflation

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[MARKET ANALYSIS] DXY rebounds, Kiwi leads and EUR weaker on cooler than expected German, French and Spanish inflation

Italian Inflation Rate YoY Prel (May) Y/Y 3.2% (Prev. 2.7%)

Italian Inflation Rate MoM Prel (May) M/M 0.4% vs. Exp. 0.2% (Prev. 1.1%)

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  • G10s are mixed against the Dollar. Kiwi leads after hawkish RBNZ speak overnight after the hawkish-leaning RBNZ hold early in the week, while Sterling lags after Cable dipped below its 200DMA.
  • The Greenback is a touch firmer in a rebound from hefty losses on Thursday, when the DXY closed 0.6% from highs. (See Commodities on the headline feed). In short, a deal seems near, but uncertainty remains over whether Trump will sign off on the proposal and whether Tehran will formally endorse the reported terms. Aside from US-Iran, eyes are also on tensions between NATO’s Romania and Russia after a drone hit a residential building in Romania's Galati. DXY is firmer by 0.2% within 98.95-99.19 parameters. 
  • French, Spanish and German state inflation imply cooler German nationwide (due 13:00 BST), and EZ (due Tuesday) prints. French GDP: Final measures softer than expected. Q1 rate was revised into contraction from flat, yearly basis was also revised a touch lower. French HICP: Softer than expected and ticks up from the prior. Spanish HICP: Ticks up a touch on a yearly basis, in line with expectations, the monthly rate falls a touch beneath expectations and previous. German CPI: Implies the nationwide rate (due at 13:00 BST) will cool at a faster rate than expected. Limited moves were seen on the metrics with EUR/USD falling around 15 pips from 08:00BST. ECB pricing for June continues to price a c.89% probability of a 25bps hike.
  • Tokyo CPI softened across the board in May, with core CPI slowing to 1.3% Y/Y from 1.5%, below expectations of 1.5%. The downside was largely driven by government subsidies on utilities and education costs. The release marks a fourth consecutive month of Tokyo core inflation running below the BoJ’s 2% target and contrasts with stronger activity data elsewhere in the economy. For the BoJ, the print provides ammunition for doves arguing for patience. Markets continue to expect the bank to raise rates at the June confab, with 18bps, or 71% probability of a 25bps hike. We expect the release of data which could show intervention occurred in April, which is due at 11:00 BST. USD/JPY trades unchanged within a narrow 18-pip 159.20-159.38 range.
  • Kiwi is the best G10 performer after hawkish speak from RBNZ officials overnight. Breman (Consensus voter) said she sees ongoing uncertainty around inflation and that, on balance, the OCR is likely to increase. Assistant Governor Silk (Consensus voter) said she did not think interest rates need to increase yet, though she cautioned that the bias is for rate hikes in the coming meetings. As such, following the hawkish speak from non-dissenting members, the bias for July is tightening with markets assigning a 70% probability of such action. NZD/USD +0.4% and towards session highs. AUDNZD -0.6%  marks a third day of declines, currently a pip below 1.2000 at the time of writing.

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