22nd February 2022 - AUD under pressure as Putin plans to sign Ukraine separatist recognition

Market Headlines

The risk averse mood continued in US-holiday thinned markets overnight, headlines on Ukraine dominating near term sentiment. European equities fell - the Eurostoxx50 down 2.2% - as did bond yields (slightly), while currencies were less affected. Eurozone Markit PMIs showed a marked lift in services activity as Omicron restrictions eased, to 55.8 (est. 52.1, prior 51.1). However, manufacturing PMI undershot expectations at 58.4 (est. 58.7). Markit cited economic resilience to the Omicron outbreak but also the increased inflationary pressures and potentially more hawkish ECB policy guidance as risks to the recovery. German PPI in February rose 2.0%m/m and 25.0%y/y (est. +1.5%m/m and 24.4%y/y). The annual rise in energy of 66.7%y/y (prior 69.0%y/y) was the key driver but basic goods continued to rise, at 20.7%y/y (prior 19.3%y/y).

UK PMIs beat expectations. Manufacturing held steady at 57.3 (est. 57.0), while services rebounded sharply to 60.8 (est. 55.5, prior 54.1), the latter helped by loosening of pandemic restrictions.

The US dollar index is unchanged on the day. EUR roundtripped from 1.1320 to 1.1386 and back. USD/JPY fell from 115.00 to 114.78. AUD fell from 0.7223 to 0.7193. NZD fell from 0.6734 to 0.6705. AUD/NZD ranged between 1.0710 and 1.0743.

The US treasury bond market was closed, but futures were open, implying 10yr yields fell slightly further from 1.93% to 1.91%. Australian 3yr government bond yields (futures) ranged between 1.64% and 1.68%, while the 10yr yield ranged between 2.20% and 2.25%. The first RBA rate is priced for June 2022.

Commodities, Brent crude oil futures rose 2.9% to $96, copper fell 0.6%, gold rose 0.1%, and iron ore rose 4.0% to $137.

Overnight Currency Range

AUD/USD 0.7164 0.7222

EUR/USD 1.1306 1.1391

GBP/USD 1.3588 1.3639

USD/JPY 114.75 115.11

NZD/USD 0.6684 0.6735

USD/CAD 1.2724 1.276

USD/CNH 6.3193 6.3302

AUD/JPY 82.27 83.05

AUD/NZD 1.0712 1.0738

AUD Thoughts

Another quieter data day ahead with market sentiment expected to be dictated to by the evolving situation in Russia. AUD/USD traded in a 0.7164/22 range in quiet trade overnight. Offering interest remains in the 0.7240/50 region while demand lies ahead of 0.7100.

Event Risk Data Today

Aust: The RBA Assistant Governor (Financial Markets) Kent will speak to the Australian Financial Markets Association at 12pm.

NZ: January’s credit card spending will offer a timely update on consumer spending.

Ger: The February IFO business climate survey is expected to report a lift in German business confidence given the tentative signs of easing tensions with supply and omicron (market f/c: 96.5).

US: December’s FHFA house prices and S&P/CS home price index is anticipated to post robust monthly gains given the strength of underlying demand (market f/c: 1.0% and 1.1% respectively). The February Markit PMIs are expected to continue reflecting robust growth in both services and manufacturing (market f/c: 53.0 and 56.0 respectively). Consumer confidence will likely remain soft in February given the downside surprise in the University of Michigan survey seen earlier in the month (market f/c: 110.0). Difficulties in sourcing labour should remain as a headwind for manufacturing in the February Richmond Fed index (market f/c: 10). The FOMC’s Bostic will discuss the Fed’s role in the community at a Duke University event.

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