Yen Prints Fresh Cycle Lows, PBOC Shows Contentment With Yuan Depreciation

Hopes for progress in diplomatic talks between Russia and Ukraine prevailed, with envoys preparing for further negotiations via a video link today. The prospect of continued dialogue seemingly outweighed developments on the ground, where Russian troops fired a barrage of missiles on a Ukrainian military base near the border with NATO member Poland. The euro and Scandinavian currencies led gains in G10 FX space, albeit weaker crude oil prices limited the Norwegian krone's gains.

• Russian rouble was indicated higher in offshore trade, despite mounting evidence that Western sanctions are taking their toll. Local equity markets will remain shut this week, while Moscow threatened to pay interest to foreign creditors in roubles, even on bonds without such optionality, raising the prospect of a default.
• Asia headline flow was dominated by worsening Covid-19 situation in mainland China and Hong Kong, with the tech hub of Shenzhen placed under a snap lockdown. The yuan lost ground in the wake of its sharp sell-off in the previous trading session, while the PBOC played ball through a display of weak bias in daily yuan fixing. China's central bank set yuan reference rate at CNH6.3506, 150 pips above sell-side estimate.
• The yuan's troubles in conjunction with weaker crude oil prices sapped strength from the Antipodeans, which are heading for the London session sitting near the bottom of the G10 pile. The Aussie was particularly hard hit, with AUD/USD testing support from Mar 8 low of $0.7245.
• The greenback advanced on the back of higher U.S. Tsy yields. This dynamic amplified pressure to the yen, amid reduced demand for safe havens, allowing USD/JPY to lodge a fresh multi-year high just a handful of pips shy of the 118.00 mark. Note that both the Fed and the BoJ will deliver their monetary policy decisions this week, but only the former is expected to tighten policy.
• It is a quiet start to the week in terms of data releases, with Swedish CPI coming up in European hours. Any fallout from Russo-Ukrainian talks and a separate meeting between top-level U.S. and Chinese officials may provide some interest.