Australian dollar higher, unaffected by Ukraine tensions

THE Australian dollar is higher as financial markets seem unconcerned by an escalation of tensions between Russia and the West.

Aussie one dollar coins, on a twenty dollar note.

THE Australian dollar is higher as financial markets seem unconcerned by an escalation of tensions between Russia and the West.

At 0700 AEDT on Tuesday, the local unit was trading at 90.87 US cents, up from 90.58 cents on Monday.

The European Union and the United States will freeze assets and impose travel restrictions on key Russian and Ukrainian officials deemed responsible for the secessionist referendum in Crimea, that is considered to be a violation of Ukraine's constitution.

BK Asset Management managing director Kathy Lien says most currencies are higher despite the political uncertainty in Eastern Europe.

“Foreign exchange investors have nerves of steel today,” she said.

“There is very little chance that Russia will bat an eye at these sanctions.

“So, while risk appetite has improved today, under these circumstances, it will be very difficult for the optimism to be sustained because there is a high risk of the crisis in Ukraine deepening.” Ms Lien said China's decision to expand the trading band for its currency should have been a big factor for currency markets but the Australian dollar had been unaffected by the decision.

The People's Bank of China at the weekend said it would allow the yuan to move up or down two per cent daily — double the previous one per cent — on either side of a midpoint set under the guidance of the bank.

“Although the (Chinese) central bank argues that the move is a step towards increasing exchange rate flexibility and greater two-way volatility in the currency, in the context of falling exports the recent slide in the Yuan clearly reflects an attempt to support the economy,” she said.

“A weaker Yuan hurts countries like Australia and Japan who rely heavily on Chinese demand.

“However, even though trade balances could suffer, the Australian dollar and the Japanese yen have taken the band winding in (their) stride.” In Australia on Tuesday, the Reserve Bank of Australia will release the minutes of its March board meeting.