AUD/USD holds on fragile grounds as bulls attempt to pull away from the beta of stocks

• AUD/USD bulls stay in charge and eye commodities for direction. 
• Ukraine crisis bears down on currencies elsewhere with economies that depend on Russian fuel. 

AUD/USD was the strongest performer on Tuesday despite its common correlation to the beta of the stock markets which sold off as attacks on Ukrainian cities intensified. Fixed income rallied across the curve yet, unusually, the price of the Aussie remained resilient. AUD/USD stuck to a 0.7238/89 range while by comparison, the ranges elsewhere in EUR/USD, for instance, were far greater (1.1233 to 1.1089 the low).

''The market is aggressively scaling back expectations for Fed tightening as the Dec-23 Fed Funds Futures contract rallied 25bp,'' analysts at ANZ bank explained, giving the US a run for its money, although not preventing it from soaring in a risk-off setting.

''Markets are bracing for a drawn-out conflict and appear to be focusing more on the negative growth implications than inflation risks. Expectations of a 50bp rise in fed funds this month have faded and investors are flocking to the safe haven of US Treasuries amid deteriorating liquidity.''

This has enabled the commodity currencies to hold up relative to those of, say, Europe which has a higher dependency on all things Russian. The heavy sanctions there and the result of the economic damage from Russia's invasion of Ukraine mean that traders believe the European Central Bank will delay hiking interest rates until next year.

''Europe remains highly exposed to Russia in some sectors, particularly energy,'' analysts at TD Securities explained. ''As the West rushes to sanction Russia, Europe is likely to feel the hit the hardest. This poses a typical stagflationary shock, and growth is likely to be lower, and inflation higher, than otherwise.''

Oil prices surged overnight despite the IEA announcing member countries (including the US) have agreed to release 60mbbl from reserves. This gave a lift to commodities overall. This potentially leaves the Aussie in good stead which is proving resilient as high commodity prices and strength in the domestic economy provides a buffer against geopolitical tensions. 

Australia as a net energy exporter is set to gain from higher commodity prices, with liquefied natural gas and coal up sharply, while wheat, nickel, aluminium and iron ore are all firm. Meanwhile, the Reserve Bank of Australia (RBA) kept interest rates steady at 0.1% after a monthly policy meeting.

Traders have pushed out the first hike to July from June and removed one rate rise from this year to imply four increases to 1.0% by Christmas. However, analysts at Rabobank argue that, in their view, ''commodity exports offer the Australia economy good insulation and should provide support to the AUD/USD. ''

Q4 GDP rebound expected today

''We expect Australian fourth-quarter Gross Domestic Product today to show a bounce of +3.6% QoQ, with household consumption the key driver of strength'' analysts at ANZ Bank said.

''Annual GDP growth is forecast to edge up to 4.2% from 3.9% in Q3. A rise of 3.6% is not as strong as the RBA’s expectation for a 4½% gain in Q4. There’s more uncertainty than usual, in these estimates, evident in the wide range of market forecasts.''