US Dollar Draws Support From Ukraine Conflict

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US Dollar Draws Support From Ukraine Conflict

Although the safe-haven U.S. dollar lost ground last Friday on the heels of bleak economic figures, the lower-yielding currency was able to recover on Monday’s forex trading when geopolitical tensions escalated over the weekend.

In particular, news that Russia’s Vladimir Putin announced the deployment of Russian military forces to take over Ukraine sparked risk-off moves, especially for the higher-yielding commodity currencies like the Australian dollar and New Zealand dollar. Later on, Ukraine acknowledged the situation as an act of aggression and warned that a full-scale war might take place if Russia doesn’t pull back its troops.

Risk-taking also took a blow when North Korea reportedly fired a couple of short-range missiles as part of its military exercises. Although the rockets were launched at sea, the distance covered by these missiles suggests that North Korean forces can be able to target Seoul and Japan very easily should a war take place.

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Forex Price Action

With that, AUD/USD gapped down over the weekend and opened at the .8900 major psychological level. Weak data from China, with the official manufacturing PMI falling from 50.5 to 50.2 as expected, also weighed on the commodity-dependent currency. Quarterly company operating profits in Australia also showed a weaker than expected reading, adding to the downward pressure on Aussie pairs. HSBC’s final manufacturing PMI was revised up from 48.3 to 48.5 as expected, but this still highlights the contraction in China’s smaller manufacturing firms.

Meanwhile, EUR/USD and GBP/USD seem intent to close out their weekend gaps as sentiment for the euro zone and the U.K. economy remain relatively strong. Spanish and Italian manufacturing PMI figures are due from the euro zone in today’s London trading session while the U.K. is scheduled to print its manufacturing production data. These reports are slated to show slight improvements, which might be enough to keep the pound and the euro afloat.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com