The Russian Invasion of Ukraine Sends Ripples as far as Australia in the Foreign Exchange Market
On Thursday, Russia launched a full-scale attack on Ukraine after years of tension that has only grown more intense over the past several months. Further to the devastation to the people of that nation, the attack has also created instability and volatility for several major world currencies.
It seems that Russian President, Putin, has little intention to stop after the events of the 24th. The country’s troops are present in several key cities in Ukraine following targeted missile strikes. According to sources, the Russians are currently trying to secure the main airport in Ukraine’s capital city, Kyiv, to act as a base for further and heavy attacks.
The purpose of this war is to drive Ukraine back under the control of the Russian government. If things continue, the possibility of global interference is all too real. As it stands, no further involvement is guaranteed, but the financial markets around the world are already seeing an impact.
How Was the AUD Affected?
The Australian dollar, as a sentiment-driven currency, plummeted on Thursday as the imminent attack became inevitable. After having finally climbed back to over 0.722 US cents earlier in the week, it hit a low of 7.096. The breaking below 0.71 represents the lowest point for the AUD since the very beginning of February.
Luckily, it recovered in a big way before the close of the day, ending back at 0.7228- almost as high as it has reached this month. Although the quick recovery was a relief for many, that kind of volatility is dangerous for the Australian FOREX market.
Continuing the worryingly volatile trend, the opening of Friday 25th saw the Australian Dollar drop once more down into the low 0.71s. Unfortunately, it did not manage to pull back quite as much as the previous day, perhaps as the reality of what could lie ahead sets in for investors.
Impact on Other Leading Currencies
The Euro also took a serious hit as the threat of all-out continental war looms all too heavily. With politicians and experts likening current events to those of 1938, it is no surprise that the primary European currency felt the pressure.
It hit a two-year low of 1.11 against the USD. Dropping below even that looked likely, although a small recovery kept things above water. Considering it opened the day above 1.13, brushing against the very limits of 1.11 is troubling.
The GBP (Pound Sterling) suffered a similar fate with lows of 1.32. However, it was able to recover quickly and strongly, breaking back above 1.34 by the end of the day. It seems that both the Euro and GBP are at the mercy of political movements, and only time can tell how they may fare if things escalate to historical levels.
On the other end of the scale and the other side of the Atlantic, the USD surged as investors looked toward safe-haven currencies and assets for more stability. It jumped by one percent, pushing ever closer to 98 on the USD index- the highest point in the last 18 months. Japan and Switzerland saw similar increases.
The Outlook Going Forward
Although European currencies are in a shakier position, the AUD could also face tough times ahead if the war between Russia and Ukraine escalates further and beyond their borders.
The AUD may take a hit as FOREX investors move towards more stable haven currencies and assets, but commodities can expect support. Oil and gas prices went up ahead of fear that a large-scale war could exasperate the already pressured supplies.
Investors should be cautious at this time and keep a close eye on the developing situation in Eastern Europe. It may be far away geographically, but the Australian investment economy is much closer than you may think.
If Russia pushes forward in its pursuit of Ukraine to the point that international allies rally and prepare to intervene, the global economy- not only Australia- is in for a turbulent time. War on any scale sends ripples through markets and foreign exchange prices, but something of this magnitude could send tidal waves.
At this stage, it is best not to make rash decisions but to follow the news closely. Keep one ear to the Australian FOREX news and the other to international politics.