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AUD under pressure as risk sentiment continues to sour

Tuesday 21 December, 2021

Daily Currency Update

The Australian dollar shifted lower through trade on Monday as markets refused to relinquish Friday’s risk off mandate. Concerns surrounding the rapid spread of the Omicron variant and the introduction of new lockdown measures have spooked investors, prompting a near term move back toward haven currencies and off risk assets. Having slipped below 0.71 the AUD touched intraday lows at 0.7085 before finding supports in the latter half of the overnight session and into this morning’s open. With little of note on the macroeconomic ticket market reaction to the evolving omicron threat continues to drive direction. While a risk off mood has engulfed currencies markets through the last two trading sessions investors overall have proved relatively resilient. Early signals suggest omicron, while dramatically more contagious is not as severe as early mutations of the covid19 virus, potentially a good thing in the evolution of the disease. Throughout the entire Covid lifecycle analysts and investors have shown a remarkable knack for looking through short-term headwinds and toward a brighter economic outlook. Inevitably we will see public health orders crimp production and activity through the next 6 months, however as more people catch the disease and develop a natural immunity and 3rd dose booster shots are delivered, a rebound in the Q2/Q3 is on the cards. With market liquidity all but evaporating in the lead into Christmas we expect the AUD will continue to find support on moves approaching 0.7070 and 0.70 US cents.

Key Movers

Haven currencies were the days big winners as Risk sentiment continues to sour in the face of a rapidly spreading omicron strain. The USD, JPY and CHF were among the days best performers as the NZD, AUD and CAD all struggled amid a correction in commodity prices and risk assets. Oil prices plunged almost 5% amid fears new travel restrictions and lockdowns will reduce demand through the coming weeks. The CAD tumbled through 0.7750, marking fresh lows at 0.7715, while rising Gas prices across Europe and the UK forced the GBP through 1.32. As a cold snap envelops Europe, fears of power shortages have sent gas prices rocketing higher overnight, with UK prices up 8% and 55% through December thus far. With the UK poised to introduce a two week lockdown after Christmas fears new restrictions, rising inflation and surging gas prices will crimp any hope of a domestic economic recovery in Q1 continue to weigh on the GBP. Remarkably despite rising Gas prices and Covid concerns the Euro faired well on Monday, advancing back toward 1.13, with no obvious catalyst on hand to explain the uptick in demand for the single currency. With little of note on today’s ticket and liquidity evaporating in the lead in to XMAS we expect ranges will be well confined with breakouts driven by the evolving omicron narrative.

Expected Ranges

  • AUD/USD: 0.7070 - 0.7180 ▼
  • AUD/EUR: 0.6250 - 0.6350 ▼
  • GBP/AUD: 1.8480 - 1.8650 ▼
  • AUD/NZD: 1.0520 - 1.0630 ▲
  • AUD/CAD: 0.9130 - 0.9280 ▲