AUD/USD Volatile in Response to Latest Russia-Ukraine News

Developments in the Russia-Ukraine conflict are still the main backdrop driving the Australian Dollar ahead of tomorrow's RBA policy announcement.

The Australian dollar was highly volatile on Monday (28/February). Having dropped in the Asian session, the currency was corrected up in the American session. At the time of writing, AUD/USD strengthened 0.42% to 0.7254, off the daily low of 0.7157.

AUD/USD Volatile in Response to Latest Russia-Ukraine News

The development of the Russia-Ukraine conflict is still the main background that drives the Australian Dollar as a commodity currency (Comdoll). Although it does not directly have trade relations with Russia, Russia's position as one of the main producers of oil, gas and some metals will affect commodities.

Yesterday, the West added sanctions to Russia. A number of Russian banks were removed from SWIFT's financial network, limiting Moscow's ability to cash in $630 billion in foreign exchange reserves. In addition, Russian airlines are prohibited from entering the European Union and vice versa. The Russians then immediately responded by banning planes from the European Union from crossing its airspace.

Regardless of the counter-sanctions, Russia and Ukraine agreed to pursue diplomacy. Delegations from Kyiv and Moscow held the first stage of negotiations on the Ukrainian-Belarusian border today.

Australian Retail Sales Rise Ahead of RBA Policy Announcement

Retail Sales Australia reported increasing in January 2022. According to data from the Australian Bureau of Statistics, Retail Sales jumped 1.8% to $32.5 billion, higher than expectations of a 0.3% increase. Sales across Australia rose, led by a 4.7% surge in Western Australia.

"The emergence of the Omicron variant and the increasing number of COVID-19 cases, combined with the absence of lockdown policies have resulted in a variety of different consumer behaviors," said Ben James, Director of Quarterly Economy Wide Statistics as quoted by Bloomberg.

The data was released two days ahead of the RBA's monetary policy announcement. Australia's central bank still has to provide a clearer commitment to monetary tightening in response to rising inflation.

Gareth Aird of CBA said, "The impact of Russia's invasion of Ukraine on the Australian economy is unlikely. We have made no changes to estimates of Australian GDP, unemployment and wages... With Europe and the US expecting not to fight Russia in Ukraine, we maintain the view (that) the RBA rate increase will occur in June 2022."