AUD/USD continues to trade with negative bias in low 0.7100s amid geopolitical angst ahead of busy week

• AUD/USD continues to trade with a downside bias as geopolitical angst keeps the dollar in demand.
• The economic calendar is busy, with RBA and Fed minutes and policymaker rhetoric, plus key data releases.

As markets remain skittish on the prospect of a potentially imminent Russian military incursion into Ukraine, macro sentiment remains on the defensive and, as such, AUD/USD continues to trade with a negative bias. The pair is down around 0.2% on the day in the 0.7125 area, having recovered somewhat from a brief dip underneath the 0.7100 level early during European trade, but having failed to recover back to the 0.7150 level.

The fast pace of developments on the Russia/Ukraine front remains confusing for investors to follow and difficult to predict what is coming next. Earlier in the day, Russia indicated a preference for continuing diplomacy, but Satellite imagery cited by US press shows that Russian troops near the Ukrainian border are moving into attack positions. Meanwhile, the Ukraine President “jokingly” referred to Wednesday as a possible date when Russia may attack, a statement which markets took seriously at first, but now are unsure what to make of.

All said, the state of heightened geopolitical risk ought to keep AUD/USD capped for now. The Aussies exposure to commodity prices, however, may prevent AUD from being the worst hit of risk-sensitive G10 currencies in the case of an all-out Russia/Ukraine war scenario. Energy prices have been surging and precious metals are up, both positives for the Aussie. Geopolitics will remain the main driver for AUD/USD this week, though traders should also keep an eye on a busy economic calendar that includes RBA and Fed minutes and policymaker commentary, plus US PPI, Retail Sales, regional Fed manufacturing surveys and Australia jobs data.