Dollar rises on Ukraine developments

Ukraine jitters raise risk apprehension

With US markets closed for a holiday overnight, volumes and volatility were muted in currency markets, sparing them the worst of the ravages seen elsewhere. Still, the US dollar did receive a modest haven bid, and the old adage of always buying US dollars in a war is as good today as it was all those decades ago when I started my trading career. Overnight the dollar index rose unwound all its early Monday losses to close at 96.16, where it remains in Asia. 95.70 and 96.50 are the near-term support/resistance levels.

Asia FX traders are clearly in wait-and-see mode today with volatility muted and the major currencies most around where they opened yesterday morning.  EUR/USD is steady at 1.1305, USD/JPY at 114.65, GBP/USD at 1.3585, AUD/USD at 0.7195 and NZD/USD at 0.6705 with AUD and NZD giving back all of yesterday morning’s gains. With the Ukraine situation deteriorating from a market perspective, the risks have skewed towards a higher US dollar, and potentially yen, as investors look for havens. The euro is likely to be the most vulnerable major currency, due to its energy supply chain vulnerability to Russia and pure geography.

Asian currencies retreated overnight as well, perhaps more on rising oil prices than Ukrainian geopolitical nerves, although they are all an intertwined story. The fallout remains relatively modest for now, especially with USD/CNY remaining anchored near 6.3500. A rise through USD 100 by Brent crude, seemingly inevitable in my opinion, will change that dynamic with most of the region being major energy importers. Malaysia and Indonesia should fare better than most because of that.

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