Australian Greenback Could Wobble on RBA Charge Resolution, Omicron Variant and US CPI

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Australian Greenback Basic Forecast: Bearish

  • Australian Dollar set new lows in opposition to the US Dollar final week
  • Omicron Covid-19 variant poses a danger if strict lockdowns ensue
  • Focus shifts to the Reserve Financial institution of Australia, 2022 steering

The Australian Greenback continued to set new lows in opposition to the US Greenback this 12 months, falling probably the most over 2 weeks since June, closing on the lowest since July 2020. The chance-sensitive forex was battered by the rising Omicron Covid-19 variant, which may weaken world progress prospects. That is because the Federal Reserve delivered a reasonably hawkish pivot this previous week, removing the word ‘transitory’ from describing inflation.

Australia’s financial system finds itself on the front-end of the worldwide provide chain, making following developments round Omicron essential. Lockdowns danger denting native progress. Whereas the nation’s first few instances of the brand new variant have already been discovered, Chief Medical Officer Paul Kelly famous that there isn’t any indication that it’s extra lethal than different strains.

Nonetheless, AUD has been monitoring a decline in commodity costs alongside a dip in world equities – see chart under. Iron ore, the nation’s key export, stays over 55% decrease from peaks earlier this 12 months. This leaves the commodity round ranges earlier than Covid. In the meantime, the financial system is rebounding from lockdowns earlier this 12 months triggered by the Delta Covid-19 variant.

Domestically, the Aussie shall be retaining an in depth eye on the Reserve Financial institution of Australia charge choice. This follows the central financial institution abandoning yield curve management because the RBA continues tapering bond purchases. However, Governor Philip Lowe has been reiterating that knowledge and forecasts don’t warrant a charge hike in 2022. That is opposite to what the markets are pricing in.

Looking at ahead curves from Bloomberg, markets are seeing charges one 12 months out round 0.9% versus 0.1% right now. This may increasingly really open the door to disappointment if the central financial institution continues to reiterate that coverage tightening in 2022 is unlikely. In the meantime, one other robust CPI report from america within the week forward might profit the US Greenback on the expense of its main counterparts.

Australian Greenback Vs. MSCI World Index, BBG Commodity Index Futures and AU Bond Yields

Australian Dollar May Wobble on RBA Rate Decision, Omicron Variant and US CPI

Chart Created Using TradingView

*Majors-based AUD index averages AUD in opposition to USD, EUR, GBP and JPY

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the feedback part under or @ddubrovskyFX on Twitter

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