AUD Surprisingly Firm as Ukraine Scenario Escalates

AUD

The AUD has performed well even under elevated risk conditions, as European and American authorities are expected to place sanctions on Russia as tension in Eastern Europe keeps markets in risk-off mode. Equities across the board were weaker with Asian bourses overwhelmingly down, the Hang Seng the worst performer down -2.7% whilst the ASX fell -1%. On the other hand, geopolitical tensions are contributing to upwards pressure on global commodity prices, favouring the commodity export-dependent Aussie. A busier day ahead beginning in Australia where Q4 Wages data is released later this morning. Forecasters expect the Wage Price Index to have increased +0.7% q/q in Q4 which would be the strongest quarterly outcome since 2014. The data, if hotter than expected, could encourage the RBA to pivot their policy guidance in a more hawkish direction at a faster pace. The RBA has only so far conceded that an initial rate hike may come before the end of the year and emphasised that they are willing to be patient.

USD

The AUDUSD continuing to steadily claw back despite the chaos sweeping geo-politics, trading at 0.7219 this morning. Wall Street couldn’t escape the sell-off with both the NASDAQ and the S&P 500 down -0.6%, while the Dow Jones was -1.1%. As tensions escalate, other commodities have been held caught in the cross-fire with Crude Oil and Natural Gas both experiencing significant increases. Natural Gas is up +10.1% whilst Crude Oil trades around $92.4 a barrel, a +1.4% change. In US data, US February Manufacturing PMI printed at 57.5 with Services PMI at 56.7, beating expectations of 56.0 and 53.0 respectively. This saw the Composite PMI jump to 56.0 from 51.1. Also released was February Consumer Confidence, which fell slightly to 110.5 though this was better than expectations of 110.0. In late news, Joe Biden announced new sanctions targeting Russian banks, sovereign debt, and wealthy individuals. This helped US equities recover some losses but not enough to mitigate the overwhelming risk. Little data from the US, though markets will pay little attention anyway with all eyes on Europe.

EUR

The AUDEUR also ascending northbound, as its trajectory has been largely positive since early February, sitting at 0.6371. Some short-lived optimism from Ukrainian President Volodymyr Zelenskyy said that he believes there would not be war nor a wider escalation. This was largely ignored by European Equities with the Dax down -0.3% and the Eurostoxx 50 0.6% lower. German business sentiment has improved for the second consecutive month in February, amid an easing in coronavirus cases and despite the risk-conditions. The Ifo Business-Climate index increased to 98.9 points in February from 96.0 points in January, above a consensus forecast. Ursula von der Leyen, President of the European Commission, tweeted that “the Union remains united in its support for Ukraine's sovereignty and territorial integrity” and that “a first package of sanctions will be formally tabled today.” Keep an eye out on all developments here.

GBP

The AUDGBP taking some positive strides, even trading up to 0.5328 at one stage before settling back to 0.5312 at time of writing. The UK was the first to take action, British PM Boris Johnson was the first to announce sanctions on Russia. The BBC reported that ''five banks have had their assets frozen, along with three Russian billionaires, who will also be hit with the UK travel bans.'' The PM stressed these could be extended, but faced calls for tougher action now. The mix of uncertainty surrounding the Ukraine crisis and a less hawkish outlook at the Bank of England are potential stumbling blocks for the Pound. Though BoE's Deputy Governor, Dave Ramsden, today advocated for more monetary tightening, but he also sees a "modest" rate hike over the coming months. We’ll likely see more details as the BoE releases their Monetary Policy Report Hearings tonight.

NZD

The AUDNZD the only currency pair trading below yesterdays levels, even if it is only marginally worse off, sitting at 1.0722 this morning. What will provide a welcome distraction for markets today is the RBNZ Monetary Policy Meetings at midday, with the bank poised for its third straight rate hike. Amidst unruly inflation and a scorching-hot housing market, New Zealand policymakers are expected to raise the official cash rate (OCR) by 25 basis points to 1.0%. Markets are fully priced for a 25bp hike rather than a 50bp increase, though Governor Orr has shown in the past that he doesn’t mind surprising markets. The RBNZ’s monetary policy decision is to precede a press conference with Orr via Zoom an hour later. The central bank is also scheduled to publish new forecasts in its quarterly Monetary Policy Statement. Markets have almost fully priced in another seven increases this year, which would take the cash rate to 2.5% in November.