Australian, New Zealand dollars worn down by geopolitical risk

[SYDNEY] The Australian and New Zealand dollars took a knock on Monday as the escalating crisis in Ukraine clouded the outlook for global growth and inflation, overshadowing strength in Australian economic data.

The Aussie was down 0.7 per cent at US$0.7181, having reached as high as US$0.7237 on Friday before global markets turned south once more. Support lies at US$0.7150 and US$0.7095, with resistance at US$0.7235 and US$0.7284.

The kiwi dollar also lost 0.7 per cent to stand at US$0.6686, after being as high as US$0.6751 on Friday. Support comes in at US$0.6656 and US$0.6630.

The euro suffered even more, sliding to a 15-week low at A$1.5473 and down 2.2 per cent for the month.

Higher commodity prices were supporting the Aussie given Australia was a net energy exporter, though record petrol prices at home will act as a tax on consumers and add to inflation concerns.

"The AUD is still comfortably inside the US$0.696 to US$0.7314 range of the year to date," noted Ray Attrill, Head of FX strategy at NAB.

"While we think this can continue to be the case in the weeks ahead, we must acknowledge the increased near-term downside risk as a consequence of the Russia-Ukraine geopolitical conflict."

One particular risk was Russia defaulting on its debt as it did in 1998.

"A default would be of macro-economic significance, doubtless reflected in a weaker-than otherwise EUR, a stronger than otherwise USD - and by default a weaker AUD," said Attrill.

New Zealand businesses had already been suffering from the spread of Omicron with a survey of sentiment out on Monday showing a steep fall in February.

Reserve Bank of New Zealand (RBNZ) chief economist Yuong Ha told Reuters it was too soon to judge what impact all this geopolitical uncertainty would have on the economy.

Rather, he emphasised the central bank had a lot more work to do on interest rates to keep inflation expectations in check.

The Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday and is considered certain to keep rates at 0.1 per cent and likely reiterate that a first hike could come later this year if the economy improves as expected.

The latest data suggests growth was running strongly into the new year with retail sales climbing 1.8 per cent in January, well above forecasts of 0.4 per cent.

Figures for gross domestic product (GDP) for the December quarter are due on Wednesday and are expected to show economic growth rebounded by a brisk 3 per cent as an easing in coronavirus lockdowns unleashed a wave of pent up consumer spending. REUTERS