AUD/USD bears move in with eyes on 0.73 the figure

• AUD/USD stalls in the risk-on rally capped in the 0.7330s. 
• Ukraine crisis headlines are driving sentiment and traders adopt them optimistically.
• RBA had scope to be patient on hiking interest rates.

AUD/USD is correcting a rally that started at the start of the European session as global commodity prices have steadied after their recent surge while investors sought some sense of how long the Russian-Ukraine conflict might last. At the time of writing, AUD/USD is trading at 0.7317, up some 0.70% and has travelled in a range of between 0.7264 and 0.7337.

There are hints that Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky may be tentatively opening themselves to a compromise. In an ABC TV interview at the start of the week that only really made traction on Tuesday in financial markets, sparking a massive risk rally, Ukrainian President Volodymyr Zelensky again called on Russian President Vladimir Putin for dialogue. Zelensky was stressing that Ukraine is ready to talk and seek compromises, but is not ready to capitulate.

As a consequence, US stocks are bouncing on Wednesday, after four straight sessions of losses, encouraged as Russia announces a new ceasefire in Ukraine to let civilians flee besieged cities. The Dow Jones Industrial Average jumped more than 2.5% to 33,441.35, with the S&P 500 higher by over 2.8% to 4,291.57, and the Nasdaq Composite higher by over 3.5% up to a high of 13,745.86.

An additional factor that has put the brakes on the Aussie comes in an easing for commodity prices that had otherwise contributed to surging inflation. Price gains in other commodities like iron ore which accounts for around 35% of Aussie exports, copper and aluminium and agricultural commodities imply a significant improvement in Australia’s terms of trade and its surpluses. Coal, liquefied natural gas (LNG) and petroleum have all been rallying as well and these made up around 28% of Australia’s goods exports in 2021

However, commodities, and specifically the energy market, has been hammered on Wednesday. Brent crude was down 12.8%, at $112.97 a barrel, after earlier falling to as low as $105.91. US West Texas Intermediate fell 18%, to $103.98, both dropping from their highest since 2008. Investors have taken the view that the US ban on Russian oil will not worsen a supply shock. 

Meanwhile, the Reserve Bank of Australia (RBA) Governor Philip Lowe warned that the jump in commodity prices would likely lift inflation further and could feed through to wage claims. However, he reiterated that RBA had scope to be patient on hiking interest rates, and it was plausible a move would come later this year.