Potential OPEC+ Output Cut Aids Oil-Tied FX, Pound Sinks On UK Fiscal Plans

Higher crude oil prices set the tone of price action across G10 FX space, triggering a rally in commodity-tied currencies. Oil advanced on reports flagging talks among OPEC+ members who are looking to deliver a collective output cut to the tune of 1mn barrels/day, which can be finalised at the group's summit this week.

• The Antipodeans outperformed in the G10 basket ahead of local central bank meetings this week. AUD/USD 1-week implied volatility jumped to its highest levels since Apr 2020, with the OIS strip pricing a ~60% chance of a 50bp hike to the cash rate target on Tuesday. NZD/USD 1-week implied volatility also climbed to a cyclical high, despite broad consensus that the RBNZ will raise the OCR by 50bp on Wednesday.
• Sterling resumed its decline as UK government keeps defending its controversial fiscal plans despite brewing rebellion from Tory backbenchers and a downward revision to the UK's credit rating outlook last Friday. Cable shed ~50 pips in the Asia-Pac session, snapping a four-day recovery.
• European currencies were relative underperformers as Russia's Gazprom suspended natural gas deliveries to Italy, raising fears of further escalation of tensions on the energy front.
• Public holidays in China, South Korea and some Australian states limited regional activity at the start to the week.
• Manufacturing PMI readings from across the world, as well as comments from Fed's Bostic & Williams, BoE's Mann & Riksbank's Floden will take focus after Asia hours.