AUD edges higher as war avoided; for now
Wednesday 23 February, 2022
Daily Currency UpdateThe Australian dollar tested an extension beyond resistance at 0.7220 through trade on Tuesday as risk sentiment improved despite rising geopolitical tensions. Market attention remains consumed by the ongoing developments in Europe, as Russia appears poised to launch a full-scale attack on Ukrainian forces. Having stated Russia would recognise the independence of the contested territories of Donetsk and Luhansk, Putin deployed military forces into separatist controlled Ukraine. With war now imminent, markets remain affixed to Putin’s next move as the critical marker for ongoing risk demand. Having tested intraday highs at 0.7230 the AUD has edged marginally lower into this morning’s open where it now buys 0.7220 US cents.
While our primary focus remains with Ukraine and Russia, the domestic docket contains key macro data that could shape RBA policy expectations. Quarterly wage data will be keenly observed as the RBA points to labour market performance and sustained salary increases as critical components influencing a rate adjustment. The market is pricing a 0.7% quarter on quarter increase, the largest in almost 8 years. A print above this threshold will add to expectations for an imminent adjustment in monetary policy and could propel the AUD through resistance and toward 0.7250.
Key MoversIn the broader context of global financial markets, currencies remain largely immune to the recent deterioration in Russian and Ukrainian relations, failing to acquiesce to the same risk off trend plaguing equities and other risk assets. Instead, the USD remains under pressure giving up ground to traditional risk correlated units in the AUD and NZD, while the euro found support overnight as investors appeared buoyed by the fact Europe was not at war, for now. The dollar index tested a break below 96 while the euro pushed through 1.13 to touch intraday highs at 1.1360. The GBP underperformed, giving up 1.36 to hit intraday lows at 1.3540 before pairing gains into the daily close and opening Wednesday only marginally lower at 1.3590.
With little of note on the macroeconomic ticket, our attentions remain affixed to developments in Europe. As world leaders deploy harsh sanctions on Russian entities and individuals and war appears imminent, price action will likely remain whippy as investors react and adjust to ongoing developments. Should a full-scale war break out, the euro and GBP will come under increased near-term pressure.
- AUD/USD: 0.7070 - 0.7290 ▲
- AUD/EUR: 0.6270 - 0.6420 ▲
- GBP/AUD: 1.8620 - 1.8950 ▼
- AUD/NZD: 1.0680 - 1.0750 ▼
- AUD/CAD: 0.9150 - 0.9250 ▲