CitiEuropean OpenLunar new year holidays ensured that it was quiet overnight, with just AUD markets in focus. This gave market participants some time to digest Monday moves, which saw US equities rally into the close. We suspect this was driven by a combination of short covering, month end flow, and slightly dovish Fedspeak relative to market expectations. European assets trade well with EURUSD back above 1.12 and CHF price action in focus.AUD saw slight disappointment after the RBA halted QE but stopped short of endorsing hike pricing, instead remaining “patient” and putting emphasis on upcoming CPI and wages data. Overnight, US stocks remain the key determinant for sentiment, with a gentle risk-off tone in markets as the white hot month-end stock rally gave up ground allowing CHF and JPY some small outperformance. Looking ahead, we see headline risk with the ongoing India budget announcement, room for further Fedspeak and Russia Foreign Minister Sergei Lavrov and US Secretary of State Antony Blinken speaking by phone today. France CPI could be interesting after the Germany beat, while CZK sees GDP.AUD underwhelmed?The RBA meeting produced a hard stop on AUD4bn/week QE program as expected with rates unchanged. However it was a slightly more dovish outcome than market pricing as the RBA said it was prepared to be “patient” and noted ceasing QE “does not imply a near-term increase in interest rates.” Unemployment and inflation forecasts were marked higher as expected. Note that Lowe will be speaking on Wednesday morning in Asia and the RBA statement on monetary policy is due for release on Friday. On the margin, my Asia colleagues on CitiFX Wire say this was net dovish with markets well prepared for QE to end, and looking for more endorsement for hikes. These cards are not taken off the table yet as RBA puts emphasis on upcoming CPI and wage growth data as the key determinants. However AUDUSD walked back losses at a test of 0.7050. There remains around 100bps of tightening priced in for 2022.CitiFX Strategist Vas Gkionakis says that all this suggests the focus should be squarely on the wage and inflation releases, which need to show a consistent pick up in the underlying pace for the RBA to start hiking rates. The next important release will be on 23 February (wage growth) but it will not be before mid-to-late May until the next releases become available (CPI for Q1 released on 27 April and Wage growth for Q1 released on 18 May).
Source: Tickmill
