EUR Woes Continue with Russian Pushing Ahead in Ukraine
AUD
The Australian Dollar has gained ground in the past week as the turmoil from the Russian invasion of Ukraine reverberates through markets. Although the AUD is a risk asset, it would seem like markets are treating the EUR with disdain which is releasing the risk-off pressure valve for AUD. Last week the RBA has indicated that they will wait for first quarter CPI data in late April, before considering any change to the interest rate. Like many other central banks leaders, Lowe noted that “the global economy is continuing to recover from the pandemic. However, the war in Ukraine is a major new source of uncertainty,” another reason to wait before pulling the trigger. The unfolding Ukraine war has hampered supplies of many commodities and hopes of a quick resolution to the conflict now appear unlikely. This has seen dramatic moves higher in the prices of energy, industrial metals, precious metals and soft commodities. This is everything that Australia exports, so the AUD has enjoyed some support on this front. Russia accounts for around a measly 0.2% of Australian exports as they are largely a direct competitor and possess most of the same assets. With Russia being sanctioned, this may lead to higher demand for Australian commodity export volume. Following reports of a fire burning at Ukraine’s Zaporizhzhia nuclear power plant on Friday, Asian equities finished the session lower across the board with the Hang Seng declining by 2.5%. The ASX also fell by 0.6% on the day, however, still closed the week 1.6% higher, primarily driven by materials and energy stocks. As mentioned, commodities have been going from strength to strength with gold, silver, iron ore, and copper gaining 1.7%, 2.0%, 3.0%, and 2.9% respectively. In the upcoming week, Australia will publish the February NAB’s Business Confidence index, March Westpac Consumer Confidence, and March Consumer Inflation Expectations. Governor Philip Lowe is due to offer a couple of speeches throughout the week.
USD
The AUDUSD pair reached a fresh 2022 high of 0.7374 on Friday, retaining its gains this morning and opening at the same level. On Friday evening the US published the February Nonfarm Payrolls report, which painted an upbeat picture. The country managed to add 678K new jobs in the month (far higher than the 407k expected) and the Unemployment Rate contracted to 3.9%, while the Participation Rate increased to 62.3%. Wall St remained soft with the NASDAQ -1.7%, the S&P 500 -0.7% and the Dow Jones -0.5% as the war in Ukraine hurt risk appetite, while oil made new highs and finished the session +6.8%. US 10 year yields fell 11bps to 1.74%. Looking ahead this week a multitude of data is due out of the US, JOLTS Job Openings (non-farming), Crude Oil Inventories, 10-y Bond Auction, along with CPI data, Unemployment Claims, and 30-y Bond Auction.
EUR
The AUDEUR continues to forge ahead amidst consistent risk off sentiment in Europe, closing the week last week at four and a half year highs of 0.6754 and opening just shy of that mark at 0.6745 this morning. European markets were left particularly vulnerable, being the worst week for Germany’s DAX 40 index since March 2020, falling over 10%. The CAC was down 5%. Vladimir Putin urged all European neighbours to considering normalising relations and that he has no evil intent towards them. He also believed that Russia would meet all economic obligations to their trading partners. No reaction to the news. Looking to the data ahead for the week and all eyes will also be on the European Central Bank for its March monetary policy announcement on Thursday night. Odds of tightening have been dramatically pulled back with the uncertainty surrounding Ukraine. However, much like the Fed, the ECB is facing a rising inflationary environment, whilst facing potential risks if they decide to raise rates amidst the turmoil in Eastern Europe.
GBP
The AUDGBP pair is humming along nicely despite the settling in of Russian troops in Ukraine, the pair reaching 10 month highs into the close on Friday of 0.5569 and holding those gains this morning. The United Kingdom’s FTSE 100 index sank 7.6% last week, the biggest weekly drop in two years. The UK economy is seen as a little less exposed to the fallout from the Ukraine war versus the Eurozone. Moreover, GBP has the benefit of being able to fall back on higher yields versus the Euro and a central bank that still plans to hike interest rates in the near future (for now), shielding the sterling from seeing the same kind of underperformance as the euro. BoE guidance emphasised last month that they only see a “modest” hiking cycle. A quiet week of data for the UK, with MPC Member Saunders speaking on Wednesday morning, and GDP m/m due out on Friday evening.
NZD
The AUDNZD is trading relatively sideways, in familiar territory last week closing out at 1.0738. Last week, the Kiwi Overseas Trade Index q/q came in below of expectations of 0.9%, coming in at -1.0%, and ANZ Commodity Prices Index came in at 3.9%. In data ahead this week, Manufacturing Sales q/q is due out Wednesday morning, and FPI m/m is due out on Friday morning. Wouldn't expect fireworks here in the short term.