Australian Dollar, AUD/USD, Russia, Risk Trends, Oil, Gold – Talking Points
- Asia-Pacific traders brace for more volatility amid geopolitical escalations in Russia
- Reserve Bank of Australia Feb minutes expected as rate traders remain hawkish
- AUD/USD battles the 20-day Simple Moving Average (SMA) as prices moderate
Tuesday’s Asia-Pacific Outlook
The Australian Dollar fell overnight versus the safe-haven US Dollar as traders digested the escalating situation on the Ukrainian border. Asia-Pacific equity markets closed mostly lower on Monday, with Japan’s Nikkei 225 index leading the losses amid a slightly stronger Japanese Yen. Despite the risk-off tone in the currency and equity spaces, bonds were sold off across the APAC region, pushing yields higher across Australia, New Zealand and China. The Dow Jones Industrial Average (DJIA) fell 0.49% in New York.
Investors flocked to gold amid the risk-off move, pushing spot prices to their highest levels traded since November 2021, ignoring rising bond yields. War in Ukraine would cause disruptions in the global economy, but it would do little to throw central banks off the current path towards policy normalization. It would likely only exacerbate inflationary pressures. Crude oil prices rose above $95 per barrel for the first time since 2014. Russia produces around 10 million barrels per day. The safe-haven flows seen overnight may moderate as APAC traders assess the situation.
The Reserve Bank of Australia’s (RBA) minutes for its February policy meeting will cross the wires today at 00:30 GMT. The central bank opted to end its bond-buying program in that meeting, with those purchases ceasing as of last week. Governor Philip Lowe made clear that the end of the program, aimed at holding down bond yields, did not signal a near-term rate hike. Market participants remain in defiance of Mr. Lowe’s dovish position instead of continuing to up their bets on rate hikes, with cash rate futures showing the implied rate increasing by over 100 basis points by the end of this year. The minutes may shed some light on what exactly policy makers are thinking, and even a subtle hawkish shift in language may put some upward force on the Aussie Dollar.
Fundamentally, the Australian Dollar’s potential downside has likely been limited by a resurgence in iron ore prices, which have benefited recently from China’s shift back into pro-growth policies. Chinese steelmakers are soon expected to ramp up production following the conclusion of the 2022 Winter Olympic Games. Supply disruptions have also helped push iron ore prices higher, with top-producer Vale SA’s operations impacted from heavy rains in Brazil and Western Australia’s Covid travel restrictions causing labor disruptions for mining operations.
Japan reported the first estimate for its fourth-quarter gross domestic product (GDP) growth at 5.4% on an annualized basis, up from -2.7% — revised up from -3.6 — in the prior quarter. The economic rebound in the island nation was likely driven by the rollback in Covid restrictions, although those measures largely returned in January in response to the Covid Omicron variant. That is expected to drag growth back into negative territory for Q1’2022. JPY/USD was largely unfazed on the data print.
Australian Dollar Technical Forecast
AUD/USD slipped lower overnight, with price now directly under the 20-day Simple Moving Average (SMA), just days after the 50-day SMA was broken. Despite the move lower, dip buyers showed up intraday around the 38.2% Fibonacci retracement level. That is a likely area of support if prices fade lower today. Alternatively, bulls will look to climb back above the 20- and 50-day SMAs to regain the narrative.
AUD/USD Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
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