Safe-haven and commodity currencies surge
One of the main drivers of the currency market at the moment is the Russia-Ukraine conflict which is causing a flight to safety and is boosting safe-haven currencies such as the US Dollar against other majors. The Euro is a casualty of the safe-haven demand with investors selling off the single currency. Meanwhile, a surge in commodity prices has increased demand for currencies such as the Aussie Dollar, New Zealand Dollar, and Canadian Dollar.
GBP/EUR climbs while GBP/USD falls
The Pound closed 1.02% lower against the US Dollar, extending its 10-week lows last week. Meanwhile, versus the Euro, the Pound managed to close 1.18% higher, reaching its strongest levels since July 2016 following the Brexit referendum. British Prime Minister Boris Johnson has suggested that the invasion of Ukraine by Russia is 'sinking further into a sordid campaign of war crimes and unthinkable violence against civilians,' and has called for more humanitarian efforts and resources to support Ukraine in defending itself. Bank of England representative Jon Cunliffe has suggested that a market correction could occur as sanctions against Russia increase. The BoE will have to juggle inflation levels—potentially fuelled by recent commodity price rises—in the face of slower growth. The week ahead is quiet in terms of UK economic data, leaving the Pound to fluctuate on geopolitical developments. However, the monthly UK growth stat will be released, as well as house price, retail sales, and industrial data.
Euro trades at lowest levels since May 2020
The Euro breached the $1.10 support level versus the US Dollar last week to trade at its weakest levels since May 2020 as the situation in Ukraine deteriorated. The European Central Bank is due to meet this week, but it's unlikely any significant policy changes will occur while the conflict between Russia and Ukraine continues to create uncertainty. When reviewing monetary tightening and rate hikes, European policymakers will need to be mindful of the prospect of slowing growth and energy price increases which could worsen inflation problems. The ECB's rate decision will occur on Thursday, and German retail and industrial data will be out during the week.
Against a basket of other majors, the US Dollar has climbed by around 2.0% in the past week as safe-haven demand remains robust. While Federal Reserve Chief Jerome Powell has stated that the central bank would be looking to hike interest rates again at its next meeting, he suggested policymakers would need to be nimble while leaving the door open for more aggressive rate hikes in the future, when less geopolitical uncertainty shrouded markets. In terms of data, US inflation stats will be released for February, while consumer confidence stats will also be released.
AUD and NZD
Aussie and Kiwi climb against the Pound
Commodity currencies such as the Aussie and Kiwi have been climbing as commodity prices accelerate due to the Russia-Ukraine conflict. As a result, the Pound hit its weakest level since December 2021 versus the New Zealand Dollar last week, closing 3.46% lower. Meanwhile, against the Australian Dollar, Sterling dropped to its lowest level since May 2021, closing 3.62% softer. Reserve Bank of Australia Governor Philip Lowe will make some speeches in the week ahead, and Westpac will release its March Consumer Confidence Index, which could be influential for the Aussie Dollar. Meanwhile, New Zealand will see the release of ANZ's Business Confidence stat for March and Card Spending numbers.
In terms of central banks, while the US Federal Reserve is expected to hike interest rates in its March monetary policy meeting, the Reserve Bank of Australia has been more cautious, suggesting that it will wait for inflation data for the first quarter before attempting to make a move on rates, meaning markets may not see this feed through to rate changes until the May monetary policy meeting after data is released in April. In contrast, the Reserve Bank of New Zealand has signalled further hikes ahead. However, it remains to be seen if uncertainty regarding the conflict between Russia and Ukraine will hamper any rate hike timelines.
Loonie strengthens as oil prices jump
The Pound closed 1.0% lower against the Canadian Dollar last week and reached its lowest level since December 2021. Canadian Dollar strength is linked to the oil price rally, as it's Canada's most lucrative export. Oil prices have jumped to around $130 a barrel—an 18% surge early on Monday morning—as the US considers banning Russian oil imports to further economic sanctions placed on Russia. The US has been cited to be in discussions with Europe regarding a coordinated ban on Russian imports, which could create further oil price volatility. In terms of data, Canadian Balance of Trade, Employment Change, Unemployment Rate, and wage data will all be released this week and could create significant moves in how the CAD exchange rate trades.