EUROPEAN FX UPDATE: Russian recognition rattles risk sentiment

Analysis details (10:29)

DXY

The Dollar index is hovering around 96.000 and off safe-haven peaks within a 96.258-95.943 range as risk aversion abates somewhat from the more extreme levels seen in response to Russia moving into Eastern Ukraine where two breakaway regions have been officially recognised. Although the situation remains fluid and far from settled on the ground or from an international perspective as the West tees up further sanctions, the fact that a Russian legislator is said to have rejected wider separatist claims has allied some fears about a large scale or full on invasion, while Russia’s Foreign Ministry is not currently contemplating the establishment of military bases, according to Tass. However, the DXY also succumbed to a bit of pressure from Euro gains in wake of an upbeat German Ifo survey, albeit without any acknowledgment of the Russia-Ukraine issue.

RUB

In stark contrast to the Greenback retreat, Rouble depreciation has waned on the aforementioned premise that Russia’s incursion may not escalate further, though Usd/Rub may also have run into resistance beyond 80.9000 when approaching November 2020 peaks around 80.9379, while Brent holding around Usd 99/brl is supportive to an extent as well.

AUD/NZD/EUR

No surprise that the Aussie and Kiwi are more relieved than others to see a decent recovery in sentiment, but in truth Aud/Usd and Nzd/Usd were both holding up relatively well regardless and in their own right overnight. The former did not derive any impetus from RBA Assistant Governor Kent announcing changes to T’s and Cs for OMOs, but could have been underpinned by hefty option expiry interest between 0.7190-.7200 (1.64 bn approx), while the latter is keeping 0.6700 in sight with an outside chance that the RBNZ surprises on Wednesday by raising the OCR 50 bp vs expectations of +25 bp. Elsewhere, the Euro is back on the 1.1300 handle with help from the Ifo release noted above as all main metrics beat consensus by a considerable distance, but Eur/Usd may be capped by option expiries given 1.1 bn rolling off either side of 1.1345, at 1.1330-40 and 1.1350-60.

CAD/GBP/JPY          

All narrowly mixed and choppy vs the Greenback, as the Loonie receives a layer of protection from risk-off factors via WTI’s advance to within 5 cents of Usd 95/brl. Hence, Usd/Cad is straddling 1.2750 and the Pound is keeping its head above 1.3550 having matched a recent low and gleaning some underlying support from Brent crude. Meanwhile, the Yen is still getting a fillip from softer US Treasury yields and safe haven demand even though Ukraine’s President insists there will be no war and widespread escalation, with Usd/Jpy contained between 114.50-90 parameters.

CHF    

Latest Swiss sight deposit balances do not reveal the likely extent of official intervention as domestic banks only saw a circa 1.2 bn Franc increase whereas Usd/Chf has bounced firmly from very close to 0.9250 and Eur/Chf is probing 1.0400 from sub-1.0350, though this also coincides with the general improvement in the market mood.

SCANDI/PM

The Nok is buoyant alongside Brent oil for obvious reasons, but the Sek is not far behind following the latest Riksbank minutes showing reservations on the assessment and outlook for inflation. Conversely, the Try remains weak irrespective of an upturn in Turkish manufacturing confidence and the Zar has fallen in tandem with Gold from Usd 1900+/oz levels back through the round number.

22 Feb 2022 - 10:29- Fixed IncomeResearch Sheet- Source: newsquawk