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AUD steady in face of Omicron

Daily Currency Update

AUD - Australian Dollar

The Australian dollar tracked sideways through trade on Monday, holding key supports at 0.7130 as Friday’s risk off push abated. Fears the omicron variant will erode the global growth outlook and envelop the world in another wave of COVID 19 infections escalated on Friday as the new mutant virus was marked a strain of concern. Having touched intraday lows at 0.7114 the AUD bounced as high as 0.7160 before settling marginally above key technical supports. Much is still unknown about this new variant, yet early reports out of South Africa seem to suggest that those infected have suffered only milder symptoms. Such reports are encouraging but it is still far to early to tell whether the omicron strain is more virulent, contagious, and resistant to the current crop of vaccines. Until more is known about this particular variant, we anticipate a heightened degree of volatility across financial markets and currencies as investors take bets on the expected impacted on the broader global economy. Having held above the August low at 0.7106 the AUD appears well supported for now, however a definitive risk off move on the heals of a worst case Covid scenario could see the AUD test new lows and open up an extension in the November depreciation.

Key Movers

The US dollar remains well supported despite a modest risk on move through trade on Monday. The world’s base currency has larger retained Friday’s risk off gains as concerns surrounding the emergence of the omicron Covid 19 variant remain front and centre. While market fears eased it is likely to be weeks not days before we have better understanding of just how contagious and virulent this new strain is. If omicron proves resistant to our current crop of available vaccines it is likely we will see an extension in demand for haven assets. Having found strong demand last week the JPY lost some of Friday’s gloss giving up three tenths of a percent to the USD and trading marginally below 114 while the Euro continues to struggle unable to consolidate above 1.13, marking intraday lows approaching 1.1260.

Our attentions today turn to a host of key macroeconomic releases with Chinese PMI, Euro area inflation and US GDP heading the ticket. Commentary from Fed president Jerome Powell will also provide a catalyst for direction as he faces a Senate Panel on monetary policy. Powell will likely face scrutiny as to what the FOMC plans to do to combat inflation and any clue into Fed policy ahead of the December meeting could spark price action. That said, we expect omicron headlines to dominate the risk narrative over the coming weeks and potentially overshadow macro lead direction through the neat term.

Expected Ranges

  • AUD/USD: 0.7070 - 0.7220 ▲
  • AUD/EUR: 0.6270 - 0.6370 ▲
  • GBP/AUD: 1.8550 - 1.8750 ▼
  • AUD/NZD: 1.0430 - 1.0530 ▲
  • AUD/CAD: 0.9050 - 0.9150 ▲