USD & commodity currencies rally as oil hit $130

Commodity-linked currencies are soaring, with oil reaching $130 per barrel in early European trade on Monday after the US State Secretary Toni Blinken stated on Sunday that the US, in conjunction with allies and partners, is considering a complete embargo on Russian oil and gas imports.

In a Sunday letter, US House of Representatives Speaker Nancy Pelosi also said that the House is exploring legislation to ban “the import of Russian oil and energy products into the United States, repeal normal trade relations with Russia and Belarus, and take the first step to deny Russia access to the World Trade Organisation.”

Russian oil and gas embargo talks have sent European gas prices (Dutch TTF) to record highs of more than €300 per megawatt-hour. Not only oil and gas prices have soared, but also agricultural, such as wheat, and metal commodities, such as palladium and nickel, have skyrocketed over the past few days amid fears of global supply chain disruptions as a result of the Russia-Ukraine conflict.

According to the IMF, the protracted conflict and consequent sanctions are having a “serious effect” on the global economy.

As worries of stagflation and commodity supercycle grow, escalating tensions between Russia and Western countries drive a significant risk-off mood in the market, with European stock indices falling – the EURO STOXX 50 index (EU50) is down about 4% on the day – gold reaching $2.000.00/oz, and the US dollar index (DXY) hitting the highest level since May 2020. 

The European Union’s reliance on Russian gas and oil is weighing on the euro’s performance, with the single currency dropping below 1.083 US dollars.

A third round of negotiations between Russia and Ukraine is scheduled to begin today at 12:00 GMT, although chances for a solution are low given Vladimir Putin’s remarks that Ukraine must comply with Russian requests to cease hostilities. 

Chart of the day: Oil-dependent EUR plummeted against commodity currencies (AUD, NZD, CAD, NOK, ZAR)

EUR vs commodity-related currencies (AUD, NZD, CAD, ZAR and NOK): performance since Russia-Ukraine conflict – Credit: Capital.com / Source: Tradingview

Forex markets today – 7 March 2022

• In London midday trading, the US Dollar Index (DXY) soared 0.8% to 99.25 – the highest level since May 2020. 
• The euro (EUR) tumbled 0.9% versus the USD, with the EUR/USD pair dropping to 1.083, the lowest since May 2020. Worsening risk sentiment also weighed on the British pound (GBP), down by 0.6% on the day to 1.315 versus the dollar. 
• Among safe-haven currencies, the Japanese yen (JPY) is down 0.2%, hit by rising oil prices. The Swiss franc (CHF) slipped 0.9% versus the US dollar. 
• The oil-linked Canadian dollar (CAD) gained 0.1% against the USD, as WTI skyrocketed to $120-125/bbl. The Norwegian krone (NOK) was 0.6% weaker versus the US dollar, amid worries over negative spillover from the Euro Area economy. 
• Among high-beta and commodity-related currencies, the Australian dollar (AUD) and the New Zealand dollar (NZD) continue to be the best performers among G-10 currencies, strengthening 0.5 and 0.3%, respectively, against the US dollar.
• Eastern European currencies came under pressure again due to spillovers from the Ukraine crisis. EUR/CZK opened 0.8% lower despite Czech National Bank (CNB)’s statement last week about interventions on the forex market to curb CZK volatility. The Polish zloty (PLN) and the Hungarian forint (HUF) both weakened by more than 2% versus the euro. 
• The Russian rouble (RUB) resumed its free fall, with USD/RUB rising to 130. Moody’s cut Russia’s debt rating to Ca from B3 yesterday, citing government limitations on cross-border transfers, including debt service on government bonds, as well as worries about Russia’s desire and capacity to meet its debt commitments.
• Emerging market (EM) currencies remain particularly weak, with the exception of the commodity-related South African rand (ZAR). The Korean won (KRW), Mexican peso (MXN) and Turkish lira (TRY) all slipped by 1.2% on the day versus the USD. 

Major currencies: Top risers and fallers today – 7 March 2022

Major currencies: Today’s top risers and fallers, 7 March 2022, 11:15 UTC – Credit: Capital.com

Forex market heatmap – 7 March 2022

Forex market heatmap 7 March 2022 (11:15 UTC) – Credit: Capital.com

USD, EUR, GBP snapshot – 7 March 2022

• Last Friday, US non-farm payrolls increased by 678,000 in February, well above the forecast (423,000), while the unemployment rate declined by 0.2 per cent points to 3.8%, versus the anticipated of 3.9%, indicating increased labour market tightness.

• Despite the positive US labour market report, market expectations remain anchored to a 25 basis point hike for the Federal Reserve’s March meeting, according to the latest CME Group FedWatch Tool. 

• In the United States, the week’s focus will be on February’s Consumer Price Index (CPI), out on Thursday, which is predicted to drive inflation higher, with monthly predicted increases of 0.7% for the headline index and 0.5% for the core index.

• In Europe, all eyes will be on the European Central Bank meeting, which will almost certainly try to postpone the withdrawal from monetary support measures but will still have to consider the inflation risk that has become more prevalent on the European continent as a result of the Ukraine crisis.

• In the United Kingdom, the week is quiet in terms of macroeconomic appointments until Friday, when the January gross domestic product, industrial output, and trade balance figures will be released.

• Meanwhile, market risk-off has intensified demand for safe-haven assets, such as Treasuries, gilts and bunds, with core-bond yields falling across the board. The yield on the US 10-Year Treasury Note fell to 1.73% from a 2% hit before the conflict. The 10-year yield on gilt eased to 1.25% from 1.50% before 25 February, while yields on the 10-year bund fell in negative territory (-0.08%) from 0.26% hit on the day before the war in Ukraine. 

EUR/USD technical levels

• 52-week high: 1.2266
• 52-week low: 1.083
• 50-day moving average (one-day chart): 1.1308
• 200-day moving average (one-day chart): 1.1590
• 14-day relative strength index (RSI) (one-day chart): 22

GBP/USD technical levels

• 52-week high: 1.4248
• 52-week low: 1.3142
• 50-day moving average (one-day chart): 1.3520
• 200-day moving average (one-day chart): 1.3651
• 14-day relative strength index (RSI) (one-day chart): 28

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