- AUD/USD has pulled back sharply lower from 0.7445 towards 0.7355 along with the price action in the commodity space.
- Russia/Ukraine is the driving force and with a de-escalation unlikely and tougher Western sanctions likely, upside risks to commodities remain.
- Longer-term bulls are likely to target Q4 2021 highs in the 0.7550 area over the next few weeks.
As the prices of major commodities such as WTI, gold and copper have reversed sharply from the previous session’s highs, the fortunes of the commodity sensitive Aussie have also changed. The AUD/USD, which at one point was up nearly 1.0% on the day at 0.7445, was back in the red at 0.7360, where it is trading down just over 0.1%. Geopolitics (Russo-Ukrainian war) and its impact on commodity prices and the global economy remains the main theme driving macro risk appetite, with the Australian dollar succumbing to these flows and trading alongside the prices of its main raw material exports.
Talk over the weekend of a possible ban on Russian energy exports from the US and its allies sent commodity markets higher initially, underpinning AUD/USD, although Germany and Japan have opposed the idea of ​​a boycott of imports from Russia. That seemed to take the breath away from the rally in commodities and thus also the Australian dollar, as well as the news that the foreign ministers of Russia and Ukraine will meet in Turkey later this week.
The Russian government’s rhetoric regarding the demands it wants Ukraine to meet if there is to be a ceasefire remains maximalist, meaning that hopes of meaningful de-escalation remain slim. Furthermore, amid fierce Ukrainian resistance and severe logistical shortcomings, Russian forces appear to be struggling to gain ground in Ukraine. Hence the recent change in tactics towards indiscriminate heavy artillery bombardment, a change in tactics that could intensify. As Western nations watch in horror, the risk of harsher and more disruptive sanctions being imposed remains high.
For the Australian dollar, that suggests that upside risks are likely to remain intact. Comments from RBA Governor Philip Lowe and Lieutenant Governor Guy Debelle this week will be interesting (how does the RBA interpret recent events and how does this affect the policy outlook?), but will play second fiddle to macro/ geopolitical. The same can be said for the US consumer price inflation data (for February) released on Thursday and the consumer sentiment data for March on Friday – interesting and important to watch, but nonetheless unlikely to dictate price action.
Provided there is no massive collapse in risk appetite triggering a flight into US dollars (i.e. fears of a nuclear escalation between NATO and Russia) and as long as the recent uptrend in commodities continues, the AUD/USD could be headed towards its Q4 2021 highs in the 0.7550 area in the coming weeks. Dips towards support in the form of the January high in the 0.7300 area may well be an attractive entry point for some medium-term bulls.
Technical levels
Source: Fx Street
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
