AUD/USD hits 9-month high after RBA

After a positive finish on Wall Street thanks to a rally in tech, Europe points to a modestly weaker start on Tuesday, amid a rise in Russian tensions and as oil prices head back over $100.

•         More sanctions from the West on Moscow are expected, hurting risk sentiment, lifting oil
•         RBA adopts a more hawkish stance, AUD/USD jumps to a 9-month high
•         Gold struggles for direction ahead of tomorrow’s FOMC minutes

The market continues to be directed by the ramifications of the Ukraine crisis, rising commodity prices stoking inflation, and the prospect of tighter monetary policy.

While European stocks closed higher yesterday, risk sentiment is waning today amid reports that the European Union and the US are planning new sanctions to punish Moscow over the civilian killings in Ukraine. 

The US announced on Monday that it stopped the Russian government from paying sovereign debt holders more than $600 million from reserves held at US banks. The move came as JPMorgan CEO Jamie Dimon warned of a possible $1 billion loss owing to the banks’ exposure to Russia. German banks also expect slower growth this year of around 2% due to the war in Ukraine.

Business activity data will be in focus ahead of a data drop in the US. The eurozone services PMI is expected to confirm 54.8 in March, a slight slowdown from 55.5 recorded in February. Meanwhile, the UK is expected to approve the preliminary reading of 61, up from 60.5.

Oil

Oil is advancing and trades back over $100 on renewed concerns over supply disruptions due to the Russian war. The prospect of further sanctions and the stalling of Iran nuclear talks, which could have brought more oil back to the market, keeps prices elevated despite the US strategic reserves release, which is expected to start next month. Geopolitical tensions will most likely keep oil prices elevated over the coming days and weeks. API inventory data is due later today.

RBA

The Aussie dollar has popped higher following the RBA monetary policy meeting. The RBA kept interest rates unchanged at 0.1%, a historic low, as was broadly expected. However, the central bank removed the word “patient” from the monetary policy statement, hinting that an interest rate increase could be on the cards soon. AUD/USD trades at a 9-month high on the prospect of a rate hike in the coming months, most likely in June. AUD/USD pushed above resistance at 0.7540 and paused for breath before possibly looking towards 0.77.

Gold

After rising 0.4% yesterday, Gold is holding steady today around 1930, lacking directional bias. On the one hand, supported by the worsening Russia-Ukraine crisis and safe-haven flows, but on the other, rising US treasury yields and the prospect of a more hawkish Federal Reserve is hurting demand for the non-yielding, dollar-denominated precious metal. 

Attention is now turning to the ISM and S&P global services PMIs, the UN security council meeting, and treasury yields for fresh clues. The minutes of the latest FOMC meeting, which will be released tomorrow, could also provide new clues as to how aggressive the Fed might be in tightening monetary policy over the coming months.