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AUD gathers momentum as risk appetite back in focus

Friday 17 December, 2021

Daily Currency Update

The Australian dollar continued its recovery through trade on Thursday amid a renewed appetite for risk. Having met resistance on moves approaching 0.7170 the AUD tracked sideways through the domestic session, unmoved by a robust labour market print and commentary from RBA Governor Lowe. Employment growth through November accelerated at a blistering pace with 366,000 new jobs added to the economy, driving a near 1.5% increase in the participation rate and a 0.6% fall in the unemployment rate. With central bank commentary turning hawkish, Philip Lowe, the RBA Governor, attempted to deflect expectations surrounding interest rates, claiming again Australia is different to other countries and that he did not expect the same wage and price pressures to plague the domestic economy in the near term. Clearly, the market does not share the same stance as short-term bond rates rallied on the day, helping push the AUD through 0.72 to mark intraday highs at 0.7220. The AUD was however unable to hold onto gains and corrected lower into this morning’s open where it now buys 0.7180 US cents. With little of note between now and the festive season, we expect recent volatility will ease and ranges stabilise as we move into the New Year.

Key Movers

Thursday was dominated by a slew of central bank commentary, with both the ECB and Bank of England delivering policy updates. As the US dollar continues its contraction in the wake of the Fed policy update, the ECB confirmed it would start tapering bond purchases from early next year, with a plan to end the Pandemic bond-buying program in March. The winding down of emergency relief will be coupled with an increase in its traditional QE program as policymakers attempt to wean the market off central bank supports and avoid a brutal transition. European bond rates advanced in the wake of the policy update, while the euro marked intraday highs at 1.1360 before edging back toward 1.1320/30 this morning. Not to be outdone, the Bank of England surprised analysts and investors alike, announcing a 15 basis point rate hike, raising the cash rate from 0.1% to 0.25%. With just 40% of the market pricing in any policy update, the majority of traders were forced to scramble and correct positions and adjust for further rate hikes over the coming 12-24 months. The GBP rallied sharply higher, pushing back through 1.33 to mark intraday highs at 1.3375. Having navigated this week’s risk events, we anticipate price action will ease leading into the holiday period with direction driven by fluctuations in the risk narrative, largely led by developments in the race against the Omicron COVID-19 variant.

Expected Ranges

  • AUD/USD: 0.7070 - 0.7250 ▲
  • AUD/EUR: 0.6280 - 0.6420 ▲
  • GBP/AUD: 1.8420 - 1.8620 ▲
  • AUD/NZD: 1.0520 - 1.0590 ▼
  • AUD/CAD: 0.9130 - 0.9230 ▼