Russia-Ukraine War: Guide to the next moves in gold, oil, and major currencies

A "special military operation" – these are the words Russian President Vladimir Putin used to announce his invasion of Ukraine. However, the incursion into the former Soviet Republic has gone well beyond the border region and seems to threaten global peace. Explosions are heard in Kyiv.

LIVE Russia-Ukraine war market updates, gold, currencies, oil wild swings

Markets have reacted with a knee-jerk reaction sending gold to a peak of $1,950, the highest since 2020, and extending the recent uptrend. The US dollar is in high demand, rising across the board with EUR/USD dropping toward 1.12 and GBP/USD falling below 1.35.

The greenback is losing only to the yen,, with USD/JPY dropping to around 114.50, and the move goes hand in hand with the fall in US 10-year yields to 1.87%. 

Oil, which Russia exports has surged to above $97 on WTI, the highest since 2014. Brent has surpassed $100 and gas prices are also under pressure. 

What is next? It is relatively easy to start a war, but it often gets out of hand, and trying to assess what is next is difficult. However, markets tend to overreact to everything – shoot first and think later.

There are various scenarios regarding the Russian invasion of Ukraine, from a quick occupation of Eastern regions to a takeover of the entire territory. However, if neighboring NATO countries remain uninvolved, markets would calm down. The US and its allies are committed to defending each other, but not countries outside NATO. 

What is next for gold, currencies  and oil

Assuming no such spillover, some of the moves could be undone. Gold's rise is the most speculative one and is driven mostly by falling US yields. However, US inflation remains elevated and the Federal Reserve is on course to raise rates. XAU/USD's surge to $1,950 seems overstretched, and that is the first asset that is set to fall.

The safe-haven yen will likely continue gaining ground while hostilities continue, outperforming the dollar. Once a ceasefire is announced, the greenback would recover against the Japanese currency. That will likely take some time. 

Regarding commodity currencies, not all are made equal. The Canadian dollar benefits from rising oil prices, while the Australian and New Zealand dollars are sold off without thinking. These antipodean currencies would only bounce once hostilities end. 

Oil will likely be the sole long-term winner. In any post-war settlement, the world is set to try to relieve itself from Russian oil. Moreover, the world still suffers a supply-demand imbalance which favors higher prices. It is hard to see how crude comes down, at least not meaningfully. 

LIVE Russia-Ukraine war market updates, gold, currencies, oil wild swings