AUD/USD bulls challenge the risk-off environment, underpinned by prospects of higher commodity prices

• AUD/USD bulls take back control following opening gap.
• AUD/USD recovers from the lows and is higher on the day. 

AUD/USD is firm on the day despite the risk associated with the Ukraine crisis. Instead, AUD is benefiting from prospects of an inflationary environment and prospects of higher commodity currencies. At the time of writing, at 0.7250, AUD/USD is up by 0.27% and has been within a range of 0.7157 and a high of 0.7264.

Looking around, it is a risk-off day in financial markets as the first round of peace talks concluded at the Ukraine-Belarus border on Monday without a ceasefire. Ukrainian cities including Kharkiv in the east were continuing to face some of the heaviest shelling of the war thus far, with reports of significant civilian casualties. The weekend headlines sent forex into a tailspin with big opening gaps due to the news of further, stringent sanctions on Russia from the West.

AUD/USD tumbled following reports Russian President, Vladimir Putin, ordered that nuclear deterrent would be put on high alert.  AUD lost come 60 pips in the opening gap but has since recovered those and has gone on to gain over 30 pips over Friday's closing price.

Commodity-FX supported

In this regard, analysts at Rabonak explained that ''some of the specifics of this conflict including the fears around the supply of various commodities means that the winners and losers in the FX space are different than in previous crises.''

''Ordinarily, this would suppress demand and reduce risk appetite,'' the analysts noted. 

''Higher-risk currencies would tend to adjust lower in this environment and often this would include the currencies of commodity exporters.  However, Russia’s status as a large commodity exporter means that the threat of supply disruptions of oil, gas and various agricultural commodities has been amplified. The NOK has regained all the ground lost vs. the USD on the news of the invasion.''

''AUD, CAD and NZD are also recovering their poise vs. the mighty USD. The NOK and the CAD are the currencies of large oil exporters.  The AUD is usually well correlated with oil given its huge coal exports (which is a substitute good).  Australia also exports LNG. In the current environment we expect the commodities currencies to remain well supported.''