Russia Panics, China PMI Next

Russia's central bank hiked interest rates to 17% from 10.5% in a desperate attempt to stop the slide in the ruble. In G10 FX, the yen was the top performer while the loonie lagged. The RBA minutes and preliminary China December HSBC PMI are due up later. A special edition of the Premium Insights will be sent to subscribers shortly this evening.

The ruble dropped 13% on Monday and is down 50% this year as WTI crude oil plummeted another 4% on Monday. Officials attempted to intervene after a break of 61 but the effort was sooner overwhelmed as USD/JPY surged to 65.89.

The move to intervene came at 1 am local time in an episode reminiscent of Soros breaking the pound. indications show USD/RUB falling back to around 62 but the market is extremely thin.

The rout on a nuclear superpower has escalated to the point where it could cause risk aversion elsewhere and destabilize global markets. Other emerging market currencies also suffered to a lesser extent with the Turkish lira down 3.25%, the Indonesian rupiah down 1.9% and Brazil's real down 1.6%.

In major FX trading, the US dollar was caught in a nasty chop once again. It's the kind of volatility that breeds contempt.

Two conflicting forces are weighing on the dollar. Solid economic data, including an upbeat industrial production reading, points to Fed rate hikes and USD/JPY hit a session high just below 119 after the data. But the stock market is petrified of rate hikes and that caused another deep slide in the S&P 500 that pulled USD/JPY all the way to 117.85.

Elsewhere, however, the dollar was flat or higher. The big losers were the commodity currencies as AUD and CAD fell to fresh multi-year lows.

Looking ahead, with the fear in Russia and elsewhere, the last thing the world economy needs is bad news from China but that might be what it gets with the HSBC manufacturing PMI for Dec due at 0145 GMT. The consensus is a slide to 49.8 from 50.0. The break of that psychological 50 barrier could hurt sentiment.

The other main headlines to watch are from the RBA minutes at 0030 GMT. The market is struggling to price the likelihood of a Feb rate cut and will be looking for clues.