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Risk off mood forces AUD lower ahead of key risk events

Tuesday 14 December, 2021

Daily Currency Update

The Australian dollar fell through trade on Monday, unable to sustain Friday’s risk on move as fears surrounding the impacts of omicron and positioning ahead of this weeks key Fed policy update dominated direction. Having given up 0.7170 the AUD marked intraday lows at 0.7110 before edging higher into this morning’s open. The AUD appears well supported on moves approaching 0.71 and more broadly 0.70 yet investors appear reluctant to extend risk led gains. Near term headwinds and a steepening in the front end of the US dollar yield curve have forced the AUD off September/October highs above 0.75 and it appears unlikely we will enjoy any significant upside now before year end. Our attentions turn to Wednesday’s US Fed policy update. Despite the softer than anticipated CPI inflation read on Friday we expect the Fed will announce an accelerated tapering of bond purchases, with a view to ending QE supports and normalizing monetary policy settings come the middle of 2022. Market expectations are high and given the hawkish rhetoric offered by the Fed in recent weeks we anticipate volatility will be elevated in and around this key risk event.

Key Movers

Safe haven currencies carried the day on Monday, buoyed by a definitive fall in risk sentiment across equities and currencies. The JPY, CHF and USD all led gains as commodity currencies propped up the bottom of the major currency leaderboard. As a wave of new Covid infections sweep Europe and the US fears the Omicron variant will again derail the global economic recovery enveloped markets. While we have enjoyed only anecdotal evidence to date there is growing research to suggest a 3rd vaccine booster is required to properly fight this new strain. With plenty of risk events crowding the macroeconomic calendar this week’s investors appeared content in correcting positions. Our attentions turn to central bank commentary from the Fed, European Central Bank, Bank of England and Bank of Japan. With the USD expected to be stronger for longer this week’s policy updates will go a long way to shaping near term USD/JPY, GBP and Euro direction. With the Fed expected to begin hiking rates from the middle of next year a dovish surprise or failure to meet market expectations could prompt a short term correction in recent USD upside.

Expected Ranges

  • AUD/USD: 0.7000 - 0.7170 ▼
  • AUD/EUR: 0.6250 - 0.6360 ▼
  • GBP/AUD: 1.84200 - 1.8680 ▲
  • AUD/NZD: 1.0490 - 1.0620 ▲
  • AUD/CAD: 0.9080 - 0.9180 ▲