Soaring Commodities Prices Boost AUDUSD

08 Mar 2022

Despite the US dollar index (DXY) soaring to hit the highest point since May 2020, the Aussie dollar has been resilient and has appreciated against the greenback since the end of January 2022. At the time writing on 8^th March 2022, the AUDUSD is hovering around 0.7325 after retreating from its four-month high of 0.744. In this article, we will discuss about several factors that shaped the currency’s movement and provide some insights with technical analysis.

Risk aversion due to Russo-Ukrainian war

The ongoing military invasion of Ukraine by Russian forces continues to rattle to financial markets. With the Russian President Vladimir Putin not backing down from his plan to invade Ukraine, many countries are punishing Russia by imposing various sanctions and embargoes on the Russian economy. Fear of further escalation, with Putin putting Russia’s nuclear force on high alert, also placed the market in a risk-off mood with money flowing into safe haven assets like gold and the US dollar.

Sky rocketing commodities price boosts Aussie

One may find it strange that the Aussie dollar has edged up so much against the US dollar despite the soaring demand for the safe haven greenback. This could be due to the very nature of the Australian dollar, which is a commodity currency that is correlated to the price movements in commodities. The AUD has strengthened as commodities across the board soared as a result of shrinking supply. A sanction imposed on Russia, a commodities export giant, puts a significant strain on global supply, thus pushing up the prices.

The Aussie dollar is also benefiting from its geographical remoteness from Europe as most people think the economic problems evoked by the war may only be confined to Europe.

Upbeat data from Australian economy

Among factors supporting the Aussie amid overall US dollar strength, is the encouraging Australian Retail Sales that grew 1.8% in January, higher than the market consensus of 0.4% increase, and up leaps and bounds from the 4.4% decline in December. On the other hand, Australia’s Trade Balance in the month of January also performed solidly with a strong $12.9 billion, which beats market expectation of $9 billion. The string of upbeat data indicates that the Australian economy is picking up pace as it increases demand for the Aussie dollar.

Technical Analysis

AUDUSD’s gains are capped by an upward sloping dynamic support-turned-resistance line which stretched back to August 2021. Technical indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are hovering at bullish regions.

In the immediate short term, we forecast that the AUDUSD to retrace further to retest dynamic resistance-turned-support levels at DS1 and DS2. Provided that these support levels are held, the upside potential for the pair remains intact, with targets at 0.74 (R2) and 0.7467 (R3) in extension.

Tuesday, March 8

USD – Goods and Services Trade Balance (Jan)

Wednesday, March 9

AUD – RBA’s Governor Lowe speech, Westpac Consumer Confidence (Mar), RBA’s Debelle speech

CNY – Consumer Price Index (YoY)(Feb)

Thursday, March 10

AUD – Consumer Inflation Expectations(Mar)

USD – Consumer Price Index (MoM)(YoY)(Feb), Consumer Price Index Core s.a(Feb), Consumer Price Index ex Food & Energy (MoM)(YoY)(Feb), Initial Jobless Claims(Mar 4)

Friday, March 11

USD – Monthly Budget Statement(Feb), Michigan Consumer Sentiment Index(Mar)

AUD – RBA’s Governor Lowe speech

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