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AU to US Dollar at Multi-Week High as Commodity Prices Surge

The AU to US Dollar is trading higher at 0.7371 levels. AUD/USD is trading at levels last seen in November 2021, with a surge in commodity prices.

AU to US Dollar Trades at Five-Week Highs

AU to US Dollar at Multi-Week High
AU to US Dollar at Multi-Week High

The AU to US Dollar started the year at 0.7183 and moved lower to 0.6968 by the end of January. It is currently trading higher by 5.7% in March 2022. The AUD/USD is on an upmove with a positive bias for five weeks as it closed for the week at 0.7370 on March 4, 2022.

The Russia-Ukraine war brought a surge in commodity prices, which favors an upside movement in the Australian Dollar. The Reserve Bank of Australia keeps policy rates unchanged at 0.1%.

Australian Dollar Gains with Surge in Commodity Prices

Commodity forms almost half of the Australian exports. The sanctions imposed on Russia stepped up the demand for commodities from Australia. Demand for Australian goods surges higher as the Ukraine conflicts prolong for more than a week.

Commodity prices rose 16.7% in February 2022. Thermal coal prices, coking coal, and LNG lead the price hike. Australian commodity exports are high, with a current account surplus of 12.1 billion Australian Dollars.

The Australian GDP shows robust economic growth. The annual Australian GDP for 2021 is 4.2%, higher than the anticipated 3.9%. GDP for the fourth quarter of 2021 is at 3.4%, while it fell 1.9% in the third quarter. It shows strong growth in the Australian economy after lockdown restrictions came down in main cities like Victoria, New South Wales, and the Australian Capital Territory (ACT).

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AIG construction index is at 53.4 from the previous 45.9. The Australian Industry Group Index shows good expansion as it is above 50.0 levels, and this data keeps the AU to US Dollar currency levels higher.

Retail sales indicate that consumer spending at 1.8% remains unchanged. Household spending improved with the sharp rebound in the economy. The Australian Bureau of Statistics states that the current account surplus is at 12.7 billion Australian Dollars in the fourth quarter to AUD$22 billion in Q3. Consumer spending has come up, pushing the Australian GDP higher.

The Reserve Bank of Australia keeps monetary policy unchanged. Interest rates are at 0.10%. Central bank authorities say that the rate hike will not take place now. The interest rate hike will come only when wage growth picks up, which can be expected by the end of the year 2022, says RBA Governor Philip Lowe. Inflationary risk is prevalent during this period of war and uncertainty, says Lowe.

Australia does not have a strong trading relationship with Russia.

Russian Invasion of Ukraine

Western countries like the US, the UK, and the EU continue to impose sanctions on Russia with hopes of bringing the war to an end. Russian forces are moving deep into Ukraine in an attempt to capture major areas.

Russia and Ukraine are chief exporters of wheat and crude oil. Ukraine is one of the largest exporters of sunflower oil and meets almost 50% of global demand. Geopolitical tension in Ukraine results in supply disruption, causing a surge in sunflower oil prices.

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EUR/AUD Slips 8.67% in February

EUR/AUD trades at 1.4821, with a downward trend, as the currency pair breaks below support levels. The Euro to Australian Dollar trades at a 4-year low. The EUR/AUD was trading at 1.6228 in February and slipped almost 8.67% in a month.

EUR/AUD is trading at levels last seen in October 2017. Investors expected the ECB to raise rates later this year. But the conflict in Ukraine may hinder policy tightening for now. Inflation is high in the Eurozone, but the war conflict disrupted the oil supply to the EU. The European Union depends on Russia for crude supply. Most of its crude oil pipelines run through Ukraine. Supply disruptions of crude and commodities from Russia and Ukraine hurt economic sentiment in the Eurozone.

The US Dollar, the Swiss Franc, and the Japanese Yen are haven currencies that have surged higher from the recent war between Russia and Ukraine. Investors are moving to safe-haven assets.

Crude prices are trading at high prices. The US is holding talks with Iran on the 2015 nuclear deal. Once the deal gets finalized, crude prices may fall, say experts. Iran has rich crude oil resources, which can fill the supply void. It will bring down crude oil prices, say analysts.

US Dollar At Multi-Month High

The USD is on a positive trajectory, as it surged ahead to close at 98.67 on Friday, March 4, 2022. The DXY is trading at levels last seen in May 2020. The Dollar Index moved to low levels at 89.63 in May 2021, when the pandemic hit the economy.  The current Russian war on Ukraine has brought a surge in the DXY.

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Covid cases are increasing. Safety norms like wearing masks, social distancing, and maintaining hygiene have come down. People are moving in groups without taking adequate health precautions.

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