Omicron Uncertainty Holding AUD in Check
AUD
The AUD retreats from weekly highs and edged lower across most major currency pairs, the NZD excluded. Asian Equities were largely higher on Monday, with the Nikkei up 0.7% and the Shanghai Comp up 0.4%. The Australian share market close dup higher, following a stronger session in Wall Street on Friday, the ASX 200 gained 0.4% to 7,379 points. Commodities were mixed overnight with Gold and Silver closing with little movement in the green, while Iron Ore dipped –0.6%. A quieter start to the week has seen the Aussie dollar at mercy of other major pairs. But there will also be plenty of domestic Australia/New Zealand data for FX markets to sink their teeth into, as well as some central bank speak. RBNZ Governor Adrian Orr orates on Tuesday ahead of the release of NZ Q3 Current Account numbers and the Australia December Westpac Consumer Sentiment survey.
USD
After closing last week in the green, the AUDUSD slides overnight and is trading at 0.7128 at the time of writing. At the beginning of the trading week, the Aussie peaked to as high as 0.7174, then slumping as the market sentiment spurred a flow toward the safe-haven status of the greenback, weighing on the riskier commodity-related currencies. All three major US equities declined with the Nasdaq down -0.9%, while the Dow Jones and the S&P 500 were 0.6% lower. The 10-year US Treasury yield fell to 1.47%. Brent crude rose 0.8% to $75.77 a barrel. In the absence of local Australian data, the Australian dollar has been at the mercy of the USD as FOMC’s last monetary policy meeting looms. In upcoming data, tonight’s PPI & Core PPI will be the key focus for markets.
EUR
The AUDEUR trimmed last week’s gains to trade lower overnight, with the pair trading at 0.6320 at the time of writing. European Equities slipped on Monday as traders reacted to developments of the Omicron variant, with the CAC down -0.7% while the DAX closed with no movement. Little data of note overnight with lower-tier releases failing to establish directional momentum. Perhaps momentum can come from this week’s ECB policy announcement on Thursday. The bank is expected to announce its post-PEPP QE plans, with a temporary lift to the pre-pandemic APP QE scheme likely. Markets will likely be more sensitive to the bank’s updated economic forecasts and how ECB rate hike expectations react to these.
GBP
The AUDGBP followed suit and slid in the overnight session with the pair trading at a rate of 0.5395 this morning. The FTSE 100 slowly pushed lower to register its worst session so far this month as the prospect of more restrictions to curb the Omicron variant weighed, the UK Blue-chip index was down 0.8% at 7,231.44 points. Over the weekend, UK PM urged British citizens to get their booster jabs amid an incoming “tidal wave” of Omicron Covid-19 infections, which the health secretary Sajid Javid said now account for about 40% of infections in London. Against the covid backdrop in the UK, it seems highly unlikely that the BoE will press ahead with a rate hike. Traders have reassessed expectations of BoE rate hikes over the next year, pricing in a raise to 1% by 2023, from 1.25% by the end of 2022. Looking ahead, Tuesday’s UK labour market report and Wednesday’s UK CPI inflation report will be the key releases this week.
NZD
The AUDNZD bucked the trend to maintain its bullish momentum with the pair trading at a rate of 1.0556 at the time of writing. A lack of local data overnight saw the AUDNZD pair print fresh two-month highs. There will be plenty of local Asian/NZ data for FX markets to digest ahead, with RBNZ Governor Orr on Tuesday ahead of NZ Q3 Account numbers and Chinese retail sales figures being the key data of note.