AUD/USD Bulls Defy Risky Environment, Supported by Rising Commodity Price Outlook

  • AUD/USD bulls regain control after the opening gap.
  • AUD/USD is recovering from the lows and is up on the day.

AUD/USD is firm on the day despite the risk associated with the Ukraine crisis. Instead, the AUD is benefiting from the outlook for an inflationary environment and the outlook for higher commodity currencies. At the time of writing, at 0.7250, AUD/USD is up 0.27% and is in a range of 0.7157 and a high of 0.7264.

Looking around, it’s a risky day in financial markets as the first round of peace talks concluded Monday on the Ukraine-Belarus border without a ceasefire. Ukrainian cities, including Kharkiv to the east, continued to face some of the heaviest shelling of the war to date, with reports of numerous civilian casualties. Headlines over the weekend sent the forex into a tailspin with large opening spreads due to the announcement of additional and tough sanctions against Russia by the West.

AUD/USD fell on reports that Russian President Vladimir Putin ordered the nuclear deterrent to be put on high alert. The AUD lost 60 pips in the opening spread, but has since recouped them and continued to gain over 30 pips from Friday’s closing price.

Commodity-FX supported

In this regard, Rabonak analysts explained that “some of the specifics of this conflict, including fears over the supply of various commodities, mean that the winners and losers in the FX space are different from those of previous crises”.

“Normally, this would suppress demand and reduce risk appetite,” analysts noted.

“High risk currencies would tend to adjust lower in this environment and this would often include the currencies of commodity exporters. However, Russia’s status as a major exporter of raw materials means that the threat of supply disruptions in oil, gas and various agricultural products has been amplified. The NOK regained all the ground lost to the USD on news of the invasion.

“The AUD, CAD and NZD are also finding their balance against the mighty USD. The NOK and CAD are the currencies of major oil exporters. The AUD is generally well correlated to oil given its huge exports of coal (which is a substitute good). Australia also exports LNG. In the current environment, we expect commodity currencies to remain well supported.

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