AUD eases back from highsGBP/AUD stablising above recent lowsAussie trade surplus offers negative surpriseBut AUD undervalued says CBA

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The Australian Dollar's rapid ascent against the Pound, Euro and U.S. Dollar has eased with analysts citing the recent slip in oil prices, although Commonwealth Bank of Australia says the currency remains undervalued.

"AUD/USD unwound all the gains made this week after approaching resistance above 0.7650. A stronger USD is weighing on AUD, as well as lower oil prices following news the International Energy Agency will release 120 million barrels from its strategic reserves," says Kristina Clifton, Senior Economist & Currency Strategist at Commonwealth Bank of Australia.

IEA states agreed to release 60 million barrels of oil from storage, the director of the group said on Wednesday, adding to the 180 million-barrel release announced by Washington last week.

The move aims to cool prices following Russia's invasion of Ukraine.

This is only the fifth time in its history that the IEA has agreed to act on oil prices in such a manner.

Although oil prices remain elevated near $100/barrel they continue to trend lower from 2022 highs.

The Australian Dollar had rallied sharply as the war in Ukraine pushed global commodity prices sharply higher, offering Australia improved terms of trade given the country's rich natural resource base.

Rising oil and gas prices are particularly beneficial given natural gas is Australia's third largest export earner and helps explain much of the currency's 2022's rally.

However Australian Dollar bulls would have to contend with drawdowns in price action when oil and gas prices fade.

Above: GBP/AUD (top) and AUD/USD (bottom).

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Aussie Dollar bulls would also have to contend with news out Thursday that Australia’s trade surplus surprised to the downside for February.

The surplus narrowed to $7.5BN from a revised $11.8BN said the ABS (previously $12.9BN), markets had expected the surplus to print at $11.7BN.

The smaller surplus was the result of a surge in imports and a moderation in exports which grew 0.2% in February, having surged 6.1% in January on higher commodity prices.

Above: Australia's trade surplus dips to $7.5BN on a "flood of imports" says Westpac. Image courtesy of Westpac.

The Pound to Australian Dollar exchange rate is quoted back up at 1.7482, having been at its lowest level since 2018 at 1.7175 on Tuesday, AUD/USD is back down at 0.7490 having been as high as 0.7660 earlier in the week.

Furthermore any fading of Ukraine war fears could prove supportive of European currencies against the Australian Dollar says Clifton.

"EUR/AUD has lifted, unwinding some of this week’s losses. Lower oil prices favours EUR over AUD because Europe is a net energy importer and Australia is a net energy exporter. As the war fades into the background, we expect EUR/AUD will appreciate," says Clifton.

The EUR/AUD exchange rate is currently quoted at 1.4577, having been as low as 1.4320 on Tuesday.

A rising EUR/AUD - as envisaged by CBA in the event of easing Ukraine tensions - would also benefit the GBP/AUD given the positive correlation the two currency pairs display.

But for now the Australian Dollar's pullback from recent highs appears temporary and momentum favours the antipodean currency which could press fresh multi-year highs again before long.

"We expect the prices of Australia’s key commodity exports to remain high in 2022, supporting AUD/USD which is currently undervalued in our view," says Clifton.

Economists at Westpac say higher commodity prices, in part due to the war in Ukraine, will boost Australia's export earnings and likely lift the trade surplus to fresh record highs in coming months.

This should offer an ongoing positive fundamental case to be made for the Aussie Dollar.