AUD/USD bulls are moving in as hopes of diplomacy succeeding continue to support risk

The AUD/USD is up 0.16 percent in the Asian session, trading at 0.7197, as risk appetite returns on what appears to be more signs of diplomacy shining through the cracks of fear of an impending war between NATO and Ukraine vs. Russia.

Initially, the Australian had taken a more cautious approach, fearing that Russia would invade Ukraine. According to a State Department spokesman, reports that US Secretary of State Blinken has accepted an invitation to meet Russia’s Lavrov late next week have calmed some nerves in Asia. In addition, US President Joe Biden will host a meeting on Ukraine on Friday with leaders from Canada, France, Germany, Italy, Poland, Romania, the United Kingdom, the European Union, and NATO.

According to Reuters, iron ore fell sharply this week as Beijing increased its efforts to restrain the steel-making mineral. “ANZ analysts noted that inventories of many resources were near record lows, just as manufacturers were looking to build up stocks in response to recent supply disruptions. This, combined with forecasts of strong global growth this year, suggested that resources could withstand higher interest rates.” Meanwhile, TD Securities analysts explained that “should geopolitical risk ease, aluminum prices are vulnerable as the disruptive lockdown in Baise ends, along with Chinese curtailments and easing European power woes.’

“Markets sensitivity to Ukraine risk is likely to rise heading into February 20th, which marks the end of war games in Belarus, as the West monitors for signs that Russian troops will return to base in a strong sign of de-escalation,” the analysts added. In contrast, failure to do so would almost certainly precipitate a significant increase in Russia’s risk premium. “In turn, positions that benefit from a rise in Russia risk premium have significant time decay, as traders must be correct about the risk’s direction and timing — axes on which most participants have little advantage.”