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Russian credit rating cut to junk, Antipodeans under pressure

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The S&P lowered the Russian credit rate to junk with negative outlook as the sliding oil prices and tensions in Ukraine are serious threat to country’s financial and political stability. USDRUB tests 70 offers. Should the sell-off gains momentum above 70, we expect the CBR to intervene to temper the ruble depreciation. The CBR meets on January 30th and is expected to keep the bank rate unchanged at 17%. Given the selling pressures on the ruble, we do not expect any cut yet. Russia’s gold and forex reserves eases toward 2009 lows, 379.4 billion dollars as of January 16th. With the free-floating RUB, the FX reserves will certainly keep fading, therefore should bring the CBR to find alternative ways to intervene to slowdown the debasing.

Switzerland, EUR/CHFs sudden spike has fueled speculation that the SNB is again up to its old tricks. Just a few hours ago Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, in an interview with Tages-Anzeiger, stated that SNB is still ready to intervene in FX market. We suspect that traders are still seeing the SNB shadows rather than an actual FX intervention. While the SNB credibility in policy setting might have been tarnished, the central banks reputation in aggressively acting on FX and interest rates is unparalleled. The SNB has plenty of “street cred” to build off of. Just the mere mention of potential action has traders running scared. Add the additional support of a sight deposits (released yesterday) that had expanded past levels of a natural increase, suggesting more FX intervention. And you have an easy 100 pip rally just by saying “boo”. However, we suspect that, the SNB is unlikely to push more money into a unsettled market, which will have limited effect in stabilizing the CHF mid and long term appreciation. It is more probable that the SNB is using verbal intervention to scare the market into action. The SNB got the market to do its dirty work for 3 years, why wouldn’t they keep utilizing this important tool?

In Japan, the producer price inflation remained unchanged at 3.6% on year to December (vs. 3.5% exp.). JPY crosses traded sluggish in Tokyo. USDJPY is having hard time clearing offers above the daily Ichimoku cloud top (118.46) as the weakness in EURJPY seems still a constraint, yet expected to weigh decreasingly as EUR-complex recovers broadly. The technicals are flat on USDJPY with semi-official names reported bid at 117.25/50 area. Vanilla puts trail below 118.00, positions are mixed between 118.00/119.00, option bids trail above 119.00 for today expiry.

GBP/USD remains well supported before the advance 4Q GDP print today. The consensus is 0.6% expansion on the quarter (vs. 0.7% prev), and 2.8% growth on year (vs. 2.6% prev). We see potential for short-term rebound toward 1.54 (September-January downtrend top), should 1.5175/1.5204 zone is cleared (21-dma / optionality).

The two day FOMC meeting starts today, the verdict is due tomorrow. Mounting speculations for a delay in the timing of the first FF rate hike should keep the front-end of the US sovereign curve sustained while lower yields in Japan and Europe prevent the back-end from moving higher. The US 10-year yields remained at about 1.80/1.85% in Asia.

NZD/USD trades water in the bearish consolidation zone. The bias is solidly negative as the RBNZ (due Jan 29th) is expected to keep the OCR rate unchanged at 3.50%, while delivering softer statement as lower oil prices help cooling the CPI. Option barriers stand at 0.7480/0.7500 for today expiry, stops are seen below 0.74 support. Similarly, AUDUSD consolidates weakness below 80 cent before the CPI release (Jan 28th). Soft inflation read should revive RBA doves. Option barriers are solid at 0.80+.

Today, traders watch: Spanish November House Mortgage Approvals & Total Mortgage Lending y/y, Swedish December Trade Balance, PPI m/m & y/y, UK 4Q (Advance) GDP q/q & y/y, UK November Index of Services m/m & 3m/3m, French December Jobseekers Change & Total Jobseekers, US December Durable Goods Orders, US November S&P/CaseShiller US HPI m/m & y/y, US January (Prelim) PMI Services, US December New Home Sales m/m, US January Consumer Confidence and Richmond Fed’s January Manufacturing Index.

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