Putin Not Backing Down, Stevens Up

Late last week traders began to look at the MH17 tragedy as an opportunity for to forge a peace deal but aggressive rhetoric returned on the weekend and risk trades faded. Overall moves were small but the Swiss franc led the way while the Australian dollar lagged. The Aussie will remain in focus with speeches from the RBA's Stevens and Debelle later.

At the moment the Ukraine story is all about tone. On Friday, Obama resisted the temptation to point fingers at Russia and a call for peace from Putin raised hopes that the Malaysian Airlines disaster could be the event that ends the violence. But on the weekend Secretary of State Kerry ramped up rhetoric and Russia began a campaign to spread the blame.

European stock markets soured to start the week and US 10-year yields fell once again, hitting as low as 2.445%. That put some pressure on the yen and boosted oil prices.

The effects diminished throughout the day but keep a close eye on the changing tone in the absence of other dominant themes in the market. Those could come as US earnings season ramps up Tues/Wed and the CPI report is released in the day ahead.

Before that the focus will be on the RBA with Debelle on a panel at 2325 GMT and Stevens speaking on policy at 0300 GMT. Stevens rarely misses an opportunity to talk down the Aussie and his latest comments hinted at low rates for longer and kept pressure on AUD/USD. Perhaps this could finally be the speech that breaks its hold on 0.9400.

Another event to monitor is an 0500 GMT form RBNZ deputy Spencer. With the decision due Thursday (NZ time) the likelihood of a hint on rates is low but the market is unsure about the decision and will look for hints. The OIS prices an 86% chance of a cut but further cuts are up in the air after a low Q2 CPI print last week.