The Australian dollar has finally managed to stem the bleeding on Tuesday, after two days of sharp losses. In the North American session, AUD/USD is trading at 0.7225, up 0.56% on the day.
With the war continuing to rage in Ukraine, markets remain fragile and risk apprehension is high. There have been hints of slight progress in the negotiations between Ukraine and Russia that have given hope that a ceasefire can be reached, but Moscow appears determined to continue the fight, despite facing crippling sanctions from the West.
Has the Lucky Country’s luck run out for the Australian dollar? The currency enjoyed a run of five straight winning weeks, but dropped 1.13% last week and slid 1.44% on Monday before edging higher today. The surge in commodity prices had buoyed the Aussie in recent weeks, but the ongoing conflict in Ukraine has sapped risk appetite and is weighing heavily on the risk-sensitive Australian dollar. The markets remain volatile, and we can expect developments in Ukraine to have a strong impact on the direction of the Australian dollar.
Patience, Please
Patience was one of the messages that the RBA minutes conveyed, with the central bank saying it would continue to be patient before raising interest rates. RBA members noted that inflation was expected to continue to rise, as supply disruptions persist. However, the minutes noted that the war in Ukraine and the rise in energy prices had “created additional uncertainty about the inflation outlook.”
RBA Governor Philip Lowe has insisted that inflation must remain “sustainably” in the 2%-3% target range. Even though inflation is currently running at a 3.5% clip, Lowe has the luxury of being able to wait until he is convinced that a rate hike is needed to contain inflationary pressures. If inflation continues to accelerate, Lowe will be under strong pressure to raise rates, with a June lift-off a strong possibility.
AUD/USD Technical
- 0.7212 is under pressure as support. Below, there is support at 0.7131
- There is resistance at 0.7327 and 0.7408
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