Rising commodity prices are set to bolster a stronger Australian dollar with energy exports tipped to benefit from sanctions imposed on Russia.
Analysts at Westpac believe elevated energy prices will benefit LNG exporters and potentially offset the impact of higher oil prices to the nation's trade account.
However, Westpac flagged a bearish outlook for the currency was limited by the AUD/USD being highly sensitive to equity price movements.
The bank also highlighted higher energy prices globally would impact inflationary levels.
"Russia's attack on Ukraine is hurting global risk appetite, most obviously equity prices, a clear negative for the Aussie, but is supporting energy and metals prices, bolstering A$ commodity price support," Westpac said.
"We also need to consider anypotential implications for economic growth and inflation, most notably from the jump in energy prices."
In the last five days European thermal coal prices jumped 80 per cent following the escalation in Ukraine.
Westpac believes Russia's invasion will have a limited impact on Australia's financial markets.
"Russia's attack on Ukraine adds to the headwinds for global risk appetite, reinforcing our 0.70 forecast for June 2022," the bank said.
"However, we see RBA tightening from August 2022 and a softer US dollar helping the Aussie to 0.73 by year-end."
Russia makes up 6 per cent of the world's gas production and 8 per cent of oil reserves.
