AUD edges higher as war avoided; for now

Daily Currency Update

The Australian dollar tested an extension beyond resistance at 0.7220 through trade on Tuesday as risk sentiment improved despite rising geopolitical tensions. Market attention remains consumed by the ongoing developments in Europe, as Russia appears poised to launch a full-scale attack on Ukrainian forces. Having stated Russia would recognise the independence of the contested territories of Donetsk and Luhansk, Putin deployed military forces into separatist controlled Ukraine. With war now imminent, markets remain affixed to Putin’s next move as the critical marker for ongoing risk demand. Having tested intraday highs at 0.7230 the AUD has edged marginally lower into this morning’s open where it now buys 0.7220 US cents.

While our primary focus remains with Ukraine and Russia, the domestic docket contains key macro data that could shape RBA policy expectations. Quarterly wage data will be keenly observed as the RBA points to labour market performance and sustained salary increases as critical components influencing a rate adjustment. The market is pricing a 0.7% quarter on quarter increase, the largest in almost 8 years. A print above this threshold will add to expectations for an imminent adjustment in monetary policy and could propel the AUD through resistance and toward 0.7250.