Citi

European Open

Risk-off tore through markets during Asian trading, as headlines from Sputnik news reported that “Ukrainian armed forces fired mortar shells and grenades at four localities in the self-proclaimed Luhansk People's Republic,” citing the Joint Center for Control and Coordination. We note that we have not seen this report confirmed, but did note a denial from Ukraine. USD and JPY rose sharply alongside oil prices, while UST yields dropped in a bull-steepening move. Equities saw a similar dip. However, as we approached the Europe open, the edge of the risk off move had eased a little, with some of the moves seeing a little of a reversal. Earlier in the day, we had also seen Axios report that an unnamed US official said recent claims of Russia withdrawing troops are “false” and instead troop numbers on the border have actually been increasing. Overall, markets remain jittery and geopolitical headlines are expected to weigh on sentiment.

The NY session saw FOMC minutes read dovish, providing no new insights around balance sheet plans and the pace and magnitude of rate hikes. Equity prices reversed losses yesterday to trade flat. In the Asian session, we saw AUD employment data come in firm, although it did not move markets.

Looking ahead, we will be very watchful of geopolitical headlines as markets remain jittery. Today, USD will see Initial Jobless and Continuing Claims at 13:30 GMT, as well as Fedspeak from Bullard and Mester at 16:00 and 22:00 GMT respectively. SEK sees inflation expectations at 07:00 GMT, followed by Riksbank's Breman speech at 08:00 GMT. Meanwhile, EUR sees ECB's De Cos speaks at 08:45 GMT, followed by ECB’s Lane at 14:00 GMT. NOK will see Norges Bank Governor's Annual Address at 17:00 GMT. In EM, we will sight rate decisions in PHP (07:00 GMT), HUF (08:30 GMT) and TRY (11:00 GMT), where no change is expected.

CIBC

FX Flows

Small AUD$ bought at top of the hour 7.00 am Hong Kong, we did not see any particular name – think it is just pure position adjustment ahead of employment data. Headline on Bloomberg that one senior US official that Russia’s claims this week that it had begun to remove troops from Ukraine’s borders were false, in fact Russia added as many as 7,000 troops to the forces. The headlines pushed AUD$ back onto 0.71-handle. Market bounced, apparently one large Aussie bank issued a note that it sees 30k jobs added. The number was better than forecast, up 12,930 jobs but it was all part-timers.

Interesting report by AFR, unemployment rate steady 4.2% but the hours worked plummeted 8.8%. The report highlighted that about 100k people usually take whole week sick in January but this year the figure jumped 450k. It said the result reflected marked expectations for unemployment rate to be steady at 4.2% while RBA forecasts rate to fall to 3.75% by end of 2022.

AUD$ rather static post-labour report, drifted lower, it could have been this AFR article. Then again, about A$1.8bn worth of 0.7200 strikes will be rolling off in coming days. There was a round of A$CAD buying and lifted AUD$ above 0.7210. On the cross, pretty bull at this point, looking to test 0.9195-0.9200, then trendline at 0.9216 and 200-day SMA 0.9215.

Recovery in the oil futures, April contract opened at $89.25, rose to $89.75, however due to demand for the A$CAD, $CAD has firmed up. I believe there are some option gamma play involved, total of $2.46bn worth of 1.2700 strikes will roll-off in coming week. Offers scattered above 1.2705 while better buying close to 1.2650. Later today we will have the December international securities transactions, previously +C$30.15bn.

In our FX Weekly, Bipan said at this point, it certainly feels like the BoC will deliver a hike at its next meeting on March 2. The communication has been quite clear on that, and for good reason – the next rate decision won’t be accompanied with an MPR or an immediate press conference from Governor Macklem. A 25 bps hike in March shouldn’t mean much for the CAD. Instead, it’ll be the speed and resting place for the terminal rate for this coming cycle that should have important implications for the CAD in the quarters ahead.