AUD/USD falls below 0.72 the figure as Ukraine crisis risk-off themes weigh

AUD/USD is opening in early Asia offered after breaking below 0.72 the figure. Markets were trading risk-off at the start of the week and AUD/USD fell from a high of 0.7193 to a fresh daily low of 0.7187. Investors eyed Russia-Ukraine peace talks, while major central bank meetings this week.

The AUD  fell at the same time that commodities retraced some of their recent gains on news from Russia-Ukraine talks. US stocks lost more ground and the S&P 500 dropped 0.74% and the Nasdaq Composite slumped around 2% while the Dow Jones Industrial Average was little changed at 32,945.24. The 10-year US Treasury yield jumped by 14 basis points to 2.142% and the Aussie yield crossed the 2.5%, printing its highest level since 2018 to 2.53%.

Russia’s attack on Ukraine is keeping flows moving towards the relative safety of US dollars. The two sides concluded a meeting on Monday to no avail while Russia launched a flurry of strikes on Kyiv. Talks will resume on Tuesday but there are little signs of a resolve.

Taking to Twitter, Ukrainian President Volodymyr Zelenskyy's aide Mykhailo Podolyak said: "Again. Negotiations go non-stop in the format of video conferences. Working groups are constantly functioning. A large number of issues require constant attention."

A report from the Financial Times was also weighing on risk sentiment. In an article, the FT said that Russia had made a request to China for military assistance at some point after the start of the now three-week invasion of Ukraine.

''The US has told allies that China signalled its willingness to provide military assistance to Russia, according to officials familiar with American diplomatic cables on the exchange.''

''The cables, which were sent by the US state department to allies in Europe and Asia, did not say whether China had signalled that it would help Russia in the future or if it had already started providing military support. Nor did they say at which point in the conflict Beijing appeared open to offering the help.''

The news comes at the same time that US National Security Adviser Jake Sullivan began talks with China's Communist Party Politburo member Yang Jiechi, Bloomberg reported, citing people familiar with the matter.

"We do have concerns about China's alignment with Russia at this time and the national security adviser was direct about those concerns and the potential implications and consequences of certain actions," the official was quoted by CNN as saying. This came as CNN reported Russian airstrikes hit a large Ukrainian military base near the border of Poland, a NATO member.

Looking ahead, the central banks will be a meanwhile distraction. The Reserve Bank of Australia will release its minutes and traders will be looking for insight with regards to inflation risks.

''The RBA’s preference is to “take the time to assess the incoming information and review how the uncertainties are resolved.” It thinks it has more scope to do so than some other central banks because of the “starting points for wages growth and underlying inflation in Australia.” The reference to underlying inflation highlights the RBA’s preference to look through spikes in headline inflation,'' analysts at ANZ Bank said. ''But its willingness to do so will depend on the psychology of inflation. If it shifts, the RBA’s “scope” for patience will quickly narrow.'

Other data will be eyed in the Employment report. ''We anticipate a strong labour market print for Jan as economic activity continues to pick up amid loose restrictions and robust labour demand,'' analysts at TD Securities wrote. ''We forecast 50k for the headline and for the participation rate to edge higher to 66.4% which brings the unemployment rate to 4.1%, levels last seen since Mar 2008. We also see a rebound in hours worked after the 8.8% m/m decline in Jan.''

As for the Federal Reserve, market rates implied a 99.8% probability policymakers will increase the Fed funds rate by a quarter of a percentage point Wednesday from the current range of zero to 0.25%, according to the CME Group's Fed Watch Tool.