Australian dollar rallied while euro continued its decline

On Tuesday, the euro traded in the red while the Swiss franc and the Swedish crown rallied. The upcoming French election, along with the chance of more sanctions against Russia, unnerved investors. French financial markets contemplate the possibility of far-right candidate Marine Le Pen winning over President Emmanuel Macron in this month’s elections. Tuesday’s session saw sharp losses on Paris blue-chip index and government bonds. Refinitiv data showed that worries about the outcome of the French elections had prompted the Euro’s traders to slowly ramp up buying, putting options around the $1.07-$1.09 levels for the end of April expiry.

Against the U.S. dollar, the common currency briefly tumbled down to more than a one-week low of $1.0956. It had hit a one-month high of $1.1185 just days earlier, thanks to increased optimism over an end to the Ukraine conflict. Simon Harvey, the head of FX analysis at Monex Europe, noted that the euro continues to underperform the broad G10 space with growth risks persisting from events in Eastern Europe. He expects price swings for the euro. Volatility may also climb to three-week highs as investors brace for more sanctions.

According to Harvey, sentiment around the common currency is becoming more bearish by the day. On Tuesday, its biggest losses were against the Swedish crown and Swiss franc, with declines of 0.4% and 0.2%, respectively. On Monday, the United States and European countries promised to punish Moscow over civilian killings in northern Ukraine. Meanwhile, the Kremlin denied accusations related to the civilians’ murder. New sanctions might include restrictions on the billions of dollars in energy that Europe currently imports from Russia.

How are the Aussie and Yen faring?

The Australian dollar skyrocketed to a nine-month high on Tuesday. The country’s central bank hinted that higher interest rates were closer. As a result, the Aussie rallied by 1.23% to $0.7639, hitting its strongest level since June 14. The Reserve Bank of Australia (RBA) dropped its pledge to be patient on tightening policy, but it held the key rate at a record low, as investors widely expected.

The dollar index dropped by 0.07% to 98.902 from a one-week high of 99.083 hit overnight. The U.S. currency also traded flat against the Japanese yen at 122.73 yen, broadly tracking moves in long-term U.S. Treasury yields. It consolidated around 122.5 after lowering from a multi-year high of 125.105 on March 28.

Meanwhile, emerging market stocks and currencies firmed on Tuesday. On the other hand, Russian shares plummeted. The United States and Europe seem set to hit Moscow with a fresh round of penalties in retaliation for civilian killings in northern Ukraine. Russian stocks declined by 1.7%, while the onshore rouble shaved off 0.6% against the dollar.

Tim Wessel, the macro strategist at Deutsche Bank, noted that reports of Russian atrocities in formerly occupied Ukrainian territories had prompted a renewed call for sanctions among western allies. The new sanctions might come as soon as this week, adding to strict Western curbs already in place on Moscow. On Monday, the United States stopped the Russian government from paying holders of its sovereign debt (more than $600 million) from reserves held at American banks.

Wessel said that the prospect of Russia’s energy sector dropping within the sanction crosshairs is becoming a more realistic possibility. But the prospect of more sanctions is causing the rally in already skyrocketing oil prices. London copper hit its highest level in nearly a week.

What about other EM currencies?

The MSCI’s index for emerging market stocks climbed up 0.2% on Tuesday, while its currencies gained 0.1%. A lockdown in Shanghai still weighed on Asian emerging markets on Tuesday, even as markets in Hong Kong and China remained shut for the day.

Currencies in eastern and central Europe traded mixed against a decreasing euro. Hungary’s forint plummeted by 0.4% even as industrial output soared above analyst forecasts in February.

However, the Thai baht and Philippine peso firmed on Tuesday as a surge in inflation numbers in the countries pushed traders towards safe-haven assets. Market players hoped for monetary policy easing, although the local central banks are still maintaining their dovish stance.

The baht and the peso gained 0.4% each, with the latter rallying to an almost six-week high. However, most Asian currencies were largely trading flat against the greenback.