The Week Ahead – The Next Move

February 25, 2022

AUDUSD struggles as sentiment worsens

A deterioration in risk sentiment took a toll on the Australian dollar. War in Ukraine drove investors into safe havens and left riskier currencies such as the Aussie vulnerable.

The sell-off may intensify as markets nervously await Western powers’ next move. Domestically, even though wage growth in Australia has caught up with the pre-pandemic level, it fell short of policy makers’ expectations to warrant aggressive tightening.

Weakness in price action reflects risk-off in global markets, as well as bulls cutting back bets of an RBA rate hike in June. The pair turned south from 0.7360 and 0.6970 is the closest support.

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USDCAD rallies despite BOC rate hike

The Canadian dollar extends losses as wary sentiment weighs on commodity currencies.

Traders have already priced in a 25 basis point rate hike by the Bank of Canada this Wednesday. And this kicked off its monetary tightening cycle. Canada’s annual inflation rate hit a fresh 30-year high in January. The central bank would commit to countering stubbornly high prices with probably six rate increases this year.

The upside risk for the loonie is a 50 basis point hike. In turn, this would reveal a heavier hand from policymakers. A break above 1.2960 would send the US dollar towards 1.3200. 1.2650 is fresh support.

XAUUSD surges over the war in Europe

Gold soared after Russia launched a full-scale invasion of Ukraine. The precious metal has been building up its momentum since the start of the crisis and it finally lives up to its safe-haven status as investors dump risk assets and fly to safety.

Meanwhile, a spike in energy prices would add fuel to the global inflation headache. And this would make bullion an enviable shelter. As the US and its allies are expected to ramp up sanctions on Russian institutions and individuals, demand for gold as a store of value would compound to the rally.

A close above the psychological level of 2000 would propel gold to summer 2020’s peak (2070). 1850 is the first support.

US 30 slumps on Russia sanctions

The Dow Jones tanked to a 12-month low as investors monitor developments of the situation in Ukraine.

After an initial whipsaw at the start of the invasion, the market is preoccupied with the scale of sanctions on Moscow. The toughest measures would include banning Russia on its energy and agricultural exports and cutting its access to the Swift payment system.

However, that would deal a blow to supply chains in the EU. In turn, Europe may not afford the collateral damage when the economy is marred by an inflationary spiral. A pragmatic resolution may prevent a deeper correction. 30800 is the next support and 34200 is the hurdle ahead.

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Article by Orbex

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