AUD resilient in face of heightened risk aversion
Wednesday 2 March, 2022
Daily Currency UpdateThe Australian dollar remains well bid despite a distinct risk off move overnight. Russia’s war on Ukraine continues to intensify as stout Ukrainian resistance forces the Kremlin to ramp up its military forces, bombarding Ukraine’s second-largest city Kharkiv while amassing troops and supplies on the outskirts of the capital Kyiv. As Russia deploys a greater force against Ukraine, we can expect tensions will only intensify, spilling beyond strategic military targets and into civilian areas. The war has wreaked havoc across financial markets, and a distinct risk off mood enveloped investors through trade on Tuesday. Global bond rates rallied, as equities tumbled, and volatility measures tested 12-month highs. The AUD found support early, falling marginally short of a break above 0.73, buoyed by a sustained uptick across commodity prices. Having marked intraday highs at 0.7290 the AUD investors finally gave into the weight of risk aversion, forcing the AUD back below 0.7250 and toward intraday lows at 0.7240 US cents.
Having ignored yesterday's RBA policy announcements, market attentions remain affixed to developments in Eastern Europe. The tug of war between risk appetite headwinds and commodity prices should keep the AUD confined within recent ranges, tracking between supports at 0.7070 and resistance on moves approaching 0.73/0.7320.
Key MoversOutside European currencies, price action across majors was largely well contained through trade on Tuesday as the tug of war between risk aversion, shifting monetary policy expectations and rising commodity prices kept ranges in check. With markets overwhelmed by a risk off shift, the euro tumbled through 1.11, the first breach of this barrier in over two years and a clear signal markets expect the ramifications of war in Ukraine to reverberate across Europe. Having touched intraday lows at 1.1093 the euro found some support edging back above 1.1125 leading into the daily close. Sterling tumbled through 1.34 and 1.3350 marking intraday lows at 1.33 while the Swedish and Norwegian krone also fell, despite support from key commodities. Europe's exposure and dependence on Russian gas and oil reserves have fuelled expectations rising commodity prices will exacerbate already extreme inflation pressures, propelling the EU and UK toward recession.
Attentions remain affixed to developments in Eastern Ukraine as macroeconomic data continues to take a back seat.
- AUD/USD: 0.7130 - 0.7320 ▼
- AUD/EUR: 0.6450 - 0.6580 ▲
- GBP/AUD: 1.8180 - 1.8520 ▲
- AUD/NZD: 1.0680 - 1.0780 ▲
- AUD/CAD: 0.9170 - 0.9320 ▲