AUD/USD breaks 0.72 the figure in risk-off markets

• AUD/USD is breaking 0.7200 in risk-off markets.
• China is a theme in markets on Monday, weighing on risk sentiment.

AUD/USD is breaking the psychological 0.7200 level having fallen from a high of 0.7298 on the day so far. The US dollar is edging higher in the New York session near a 21-month high (99.415) that was hit last week, as investors eye Russia-Ukraine peace talks and major central bank meetings this week.

The dollar index (DXY), which measures the greenback against six major peers, was down 0.25% at 98.883 but was correcting in the North American market as risk appetite dies dwindles on Wall Street in choppy trade. The Dow Jones Industrial Average was lower by 0.15% and the S&P 500 was down 0.72%.

Tentative hopes of progress in peace talks between Ukraine and Russia have failed to support riskier currencies, such as the Aussie, on Monday. Investors are moving to the sidelines with central bank meetings in mind along with the concerns of more COVID-linked lockdowns in China that have curbed risk-taking.

The US Federal Reserve is widely expected to raise interest rates at its meeting ending on Wednesday, with investors pricing in a 99% chance of a 25 basis point hike. The last commentary from the Fed Chairman Jerome Powell flagged multiple rate hikes this year considering surging inflation. These expectations for progressive Fed rate hikes this year suggest it is set to remain the greenback well supported going forward. 

Meanwhile, soaring commodity prices are offering the AUD support vs. the USD in the spot market in what has been a 5 straight weekly gain for the currency. In fact, commodity prices are off to the best start in over 20 years. ''The move reflects the supply/demand COVID hangover and the rapid acceleration in geopolitical stress,'' analysts at TD Securities said.

The moves equated to last Monday’s squeeze to 0.7441 in AUD/USD, making for the highest highs since November 2021. However, that was short-lived as Russia’s attack on Ukraine continued to roil markets, sending cash into the relative safety of US dollars.

The two sides concluded a meeting on Monday with little sign of progress, as Russia launched a flurry of strikes on Kyiv and 400,000 people remained trapped in Mariupol. Talks will resume on Tuesday. Taking to Twitter, Ukrainian President Volodymyr Zelenskyy's aide Mykhailo Podolyak said: "Again. Negotiations go non-stop in the format of video conferences. Working groups are constantly functioning. A large number of issues require constant attention."

Meanwhile, weighing on risk sentiment further, China is facing its worst COVID crisis since early 2020, when the world first witnessed an entire population locked down to contain the coronavirus in Wuhan and its surrounding province. Two years on, it's now sending tens of millions of people into lockdown in the entire northeastern province of Jilin, where 24 million people live, and the southern cities of Shenzhen and Dongguan, with 17.5 million and 10 million, respectively.