The U.S. dollar rose for a third straight week as tensions between Russia and Ukraine continued. After the Russian army officially invaded Ukraine, European currencies plummeted across the board, with the EUR/USD dropping more than 200 pips in a single day to a low of 1.1106. The U.S. dollar hit a five-week high of 97.68, which is exactly 61.8% of the rebound from the pre-pandemic high in the United States and the low in January last year.
As the war between Russia and Ukraine continued, U.S. President Biden and other NATO countries did not take any military action. As a result, investor sentiment shifted immediately, causing the dollar to fall. The dollar fell to 96.51 as most major currencies regained lost ground to rebound sharply against the dollar.
To determine if the dollar can recover this week, we must keep an eye on the situation in Russia and Ukraine. Suppose the US military and NATO forces intervene in the counterattack against the Russian army. The move will trigger risk aversion again, and funds will flow into the US dollar.
Another market focus this week is the interest rate meeting between the Australian and Canadian central banks. In the market, the Reserve Bank of Australia is expected to keep interest rates unchanged and the benchmark interest rate to remain at 0.1%. However, the RBA will likely scale back its bond purchases and will unveil a plan to raise interest rates as the year unfolds. The Australian dollar fell against the U.S. dollar amid tensions in Russia and Ukraine last week. Later on, the Australian dollar recovered most of its losses after the Reserve Bank of Australia's interest rate decision. If the RBA hints at a hawkish stance, the Australian dollar versus the US dollar is expected to test the 0.73 level. Conversely, it will test the 50% retracement line below 0.7140.
On Wednesday night, the Bank of Canada announced the results of its interest rate meeting. The current analysis estimates that the central bank will raise interest rates by 0.25 basis points, and the benchmark interest rate will rise to 0.5%. Furthermore, investors should pay attention to the future policy orientation outlined by the central bank Governor after the interest rate meeting. If the central bank's tone is hawkish, it will be good for the Canadian dollar, and the US dollar against the Canadian dollar is expected to test the low of 1.2633 from three weeks ago. A break above this level will test the 50-week moving average line at 1.2530.