AUD toys with break above 0.72 as investors question US rate hike expectations

Daily Currency Update

The Australian dollar edged higher through trade on Thursday, toying with a break above 0.72 US cents despite escalating tensions between Russia and the Ukraine.  Reports Ukrainian forces had fired on Russian separatists in Eastern Ukraine prompted a swift and sharp downturn across risk assets, driving the S&P 500 and bonds rates lower. The AUD plunged off intraday highs nearing 0.7220 to mark intraday lows at 0.7150 following the reports. However, currency markets appear somewhat immune to recent tensions and the AUD steadily recovered the sell-off through the overnight session. Ordinarily we would expect the specter of war and risk-off narrative to derail any AUD upside, and while safe haven currencies outperformed overnight, a possible conflict has prompted investors to correct expectations for a 50 basis point Fed rate hike next month. With little of note on the domestic ticket our attentions remain with geo-political developments and key commentary from a number of FOMC policy makers. With market estimates for Fed policy finally poised, we are keenly attuned to any signal the Fed may provide.