The Australian dollar has started the week with strong gains. In the North American session, AUD/USD is trading at 0.7043 up 0.64% on the day.
The week ended on a sour note for the Aussie, which fell -1.33%, its worst one-day performance since May. The driver behind the sharp drop was the US nonfarm payroll report, which badly underperformed. The economy produced 210 thousand jobs in November, way below the consensus of 534 thousand. This put a damper on risk appetite and sent the Australian dollar tumbling. The Aussie had a miserable month of November, and the sharp movement on Friday and the rebound today is a stark reminder of the volatility of the markets due primarily to the uncertainty over the Omicron variant.
The RBA has been ultra-accommodative, in sharp contrast to the hawkish signals coming out of the BoE and the Federal Reserve. The RBA holds a policy on Tuesday, and the markets will be looking for clues of a change in stance from the bank. I don’t expect to see any such pivot from policymakers. The benchmark rate will remain at 0.10%, and the fears of another pandemic wave mean that the bank faces less pressure to close the gap with market expectations, which have been much more hawkish than the RBA. The markets are expecting up to three rate hikes next year, while the RBA Governor Phillip Lowe stubbornly insists that rates will not go up prior to 2023. Lowe has acknowledged that inflation will not ease as quickly as the bank had anticipated, but he has not given any signals of changing policy the way Jerome Powell did last week, when he said it was time to retire the term ‘transient inflation’. I won’t be surprised if the Australian dollar sleeps right through tomorrow’s meeting.
- There are resistance lines at 0.7118 and 0.7235
- AUD/USD has support at 0.6938. Below, there is support at 0.6875
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