AUD trades below 0.72 U.S. cents

Daily Currency Update

The Australian dollar was trading below 0.7200 against the greenback heading into the close on Friday. The AUD/USD closed the week down from a weekly high of 0.7276 which it reach on Thursday.  We continue to see a slow economic recovery amid the spread of Omicron, while employment figures began to disappoint for the same reason. Last week employment result saw Australia added 64.8K positions in the month, more than doubling the market’s expectations. The unemployment rate contracted to 4.2%, much better than the 4.5% expected, while the participation rate remained steady at 66.1%. Looking ahead this week all eyes will be on all-important 4th quarter CPI numbers are due on Tuesday and the RBA will meet for the first time in 2 months on 1st February. The mandated inflation target is 2-3% over the business cycle. They have previously stated that “The central forecast is for underlying inflation to reach 2½ per cent over 2023.” Underlying inflation is the trimmed mean measure. From a technical perspective, the AUD/USD pair is currently trading at 0.7171. We continue to expect support to hold on to moves approaching 0.7150 and remain vulnerable to Fed-related USD flows and risk appetite.

Key Movers

Last week saw the Peoples Bank of China (PBOC) ease monetary policy by adding liquidity and cutting several key borrowing rates. A zero case Covid-19 policy concerning developments in their property sector prompted the action. This saw iron ore and other ferrous metals move higher. Energy commodities, gold, copper and aluminium continue to trade at elevated levels, adding to Australian export dollars. Looking ahead this week the US Federal Reserve will announce its decision on monetary policy on January 26. No action is expected at this time, although market participants are hoping for clearer hints about upcoming rate hikes. Investors are pricing in a first-rate hike for March 2022 and at least three hikes through the year. Also, the United States will publish the first estimate of Q4 Gross Domestic Product,  foreseen at 5.8% QoQ, and December Durable Goods Orders. At the end of the week, the US will release the Core Personal Expenditures Price Index, the Fed’s favourite inflation measure.

Expected Ranges

• AUD/USD: 0.7050 – 0.7250 ▼
• AUD/EUR: 0.6200 – 0.6400 ▲
• GBP/AUD: 1.8750 – 1.8950 ▼
• AUD/NZD: 1.0550 – 1.0750 ▲
• AUD/CAD: 0.8900 – 0.9100 ▼