Antipodeans Lag Behind Ahead Of RBA Monetary Policy Decision, Yen Takes Lead

Geopolitical concerns and the prospect of tighter monetary policy weighed generated risk-off flows across G10 FX space, even as equity benchmarks in China and Japan clawed back initial losses, while U.S. e-mini futures crept higher from the off.

• Geopolitical tensions in the Asia-Pacific resurfaced over the weekend. North Korea test-fired a barrage of eight ballistic missiles on Sunday, provoking a symmetrical response from the U.S. and South Korea. Elsewhere, Australia confirmed an incident involving its surveillance plan and a Chinese fighter jet.
• The yen took the lead and spot USD/JPY shed ~30 pips, while regional risk barometer AUD/JPY retreated under the Y94.00 mark. The BoJ released the text of a speech from Gov Kuroda, who merely reiterated his well-documented views on monetary policy.
• Antipodean currencies paced losses in the G10 FX basket. BBG trader sources suggested that the Aussie dollar was sold by leveraged funds as market pricing leaned further towards a 25bp hike to the cash rate target come the end of tomorrow's RBA monetary policy meeting (28bp worth of tightening priced now vs. 31bp last week).
• AUD/USD extended its pullback from a multi-week high printed last Friday, piercing the $0.7200 figure in the process. The pair's implied volatility climbed across the curve, with the short-end posting largest gains, amid uncertainty about the outcome of RBA deliberations.
• Offshore yuan weakened steadily as the session progressed. China's Caixin Services PMI printed at 41.4, missing the median estimate of 46.0 by considerable margin.
• The global economic docket is particularly light during the remainder of the day.