AUD/USD back below 75c heading into the week

AUD - Australian Dollar

The Australian dollar posted its third consecutive week of gains last week, latching on to risk on sentiment and soaring global equity prices. On Friday, AUD/USD initially rose above the key 0.7500 handle throughout trade however these levels could not be maintained as the pair retreated back to intraday lows of 0.7455 before recovering slightly into the close. It was a similar story for the New Zealand dollar against the greenback, with the pair currently changing hands around the 0.7150 level which sees the AUD/NZD cross rate trading around the 1.0430 handle heading into this week.

Although Monday is quiet on the data front, with New Zealand observing a public holiday, we are set to receive some pretty important datasets this week. Wednesdays Australian CPI data will be closely watched; analysts are expecting an annual pace of 3.8% before attentions will shift offshore where we are set to receive preliminary Q3 GDP data for the USA. The week is set to be rounded out by Australian retail sales on Friday.

From a technical perspective, downside supports are visible at retracement levels near 0.7400 with a break below this opening the door for a test of 0.7320. 0.7550 remains the key resistance level on the topside with rallies through this level expected to meet further resistance at 0.7620.

Key Movers

Although EUR/USD held firm around the 1.1650 level on Friday, this week is shaping up to be a key week for the EUR as the European central bank meets on Thursday. Markets are weary of a stagflationary environment with supply chain disruptions on one side, which continue to weigh on economic growth, and skyrocketing energy prices on the other side, which continues to keep inflation running high.

This context makes Thursdays ECB meeting interesting. The market is pricing a 10 basis point increase next year, as inflation expectations are finally moving higher however the concern for the ECB will be that these inflation expectations are being predominantly driven by the skyrocketing energy prices, and are not aligned with the economic growth outlook. This could lead the ECB to disappoint the market by playing down expectations of policy tightening in 2022. This would be a blow for the EUR and could see a decent sell-off.

Expected Ranges

AUD/USD: 0.7400 - 0.7550 ▲

AUD/EUR: 0.6370 - 0.6475 ▼

GBP/AUD: 1.8320 - 1.8500 ▲

AUD/NZD: 1.0400 - 1.0500 ▲

AUD/CAD: 0.9190 - 0.9280 ▲