• Australian employment and inflation figures beat expectations in December.
  • The focus now shifts to the US Federal Reserve and upcoming rate hikes in the US.
  • AUD/USD may shortly resume its long term decline, according to technical readings.

The AUD/USD pair is trading below 0.7200 heading into the close, unchanged for the week. The pair peaked at 0.7276 on Thursday, helped by encouraging Australian data that, nevertheless, fell short of overshadowing the greenback’s renewed bout of demand.

Risk aversion and soaring yields

Risk-related sentiment was sour throughout the week, as market participants became increasingly concerned about slowing economic progress in a rising inflation scenario, or stagflation. Global indexes came under pressure, with Wall Street finishing the week with substantial losses. Gold prices, on the other hand, jumped to fresh two-month highs, retaining gains at the end of the week as per trading at around $1,840 a troy ounce.

Finally, government bond yields soared, unusual behaviour in a climate of risk-off, but quite a normal one since 2021, as stagflation spreads globally. The economic recovery slowed amid the spread of Omicron, while employment figures began to disappoint for the same reason. Price pressures remained unchanged, with most developed countries seeing inflation reach multi-decade highs.

Australian data released these days hides the fact the country is also heading into stagflation, just because it took longer to put the machine in motion. Australia has had lockdowns through most of 2021 and has only just begun reopenings by the end of the year. That’s why it is experiencing a “boom,” with outstanding job creation in November, followed by an upbeat December report released this week. The country 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%.

Additionally, January Consumer Inflation Expectations contracted to 4.4% from 4.8% previously, not bad news at all. However, it is yet to be seen if the country will be able to sustain steady job creation and inflation within decent levels.

Busy calendar ahead

As opposed to what was seen in the last few days, the upcoming week will be a busy one in terms of macroeconomic releases. On Monday, it will be the turn of the preliminary estimates of January PMIs for both economies, while Australia will release December NAB’s Business Confidence and the Q4 Consumer Price Index on Tuesday. Later in the week, the country will offer the December Westpac Leading Index and the Q4 Producer Price Index.

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 country 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.

AUD/USD technical outlook

The weekly chart for the AUD/USD pair shows that it remains trapped between directionless moving averages, with a bearish 20 SMA capping the upside. The Momentum indicator is heading south within negative levels, while the RSI indicator is consolidating around 45, skewing the risk to the downside. Additionally, the pair is battling around the 38.2% retracement of its 0.7555/0.6992 decline.

The daily chart offers a neutral-to-bearish stance. A mildly bearish 100 SMA is converging with the 50% retracement of the mentioned decline at 0.7275 providing resistance, while the pair is trading below a flat 20 SMA. In the meantime, technical indicators seesaw around their midlines, lacking directional strength.

Bulls may take over on a break above the aforementioned 0.7275 level, with the next relevant level at 0.7340, the 61.8% retracement of the same slide. Beyond the latter, the pair may extend its rally up to the 0.7400 region. Below 0.7130, the risk should turn to the downside, with scope for a test of the 0.7000 threshold.

AUD/USD sentiment poll

The FXStreet Forecast Poll hints at further declines for AUD/USD. Bears are a majority in the three time-frame under study, although they decrease as time goes by, and only in the weekly view they reach 50% of the polled experts. On average, the pair is seen stable at around 0.7190 in the next three months.

The Overview chart replicates the neutral stance, although the near-term moving average ticks lower, which may spur some selling next week and see some long-term position readjustments in the next one. Worth noting that in the quarterly perspective,  the number of those looking for lower lows sub-0.7000 continues to rise.

Related Forecasts: 

EUR/USD Weekly Forecast: Federal Reserve between a rock and a hard place

Gold Weekly Forecast: XAU/USD could turn south on a hawkish Fed surprise

GBP/USD Weekly Forecast: Sterling set rebound with help from the Fed, ignoring Boris' travails

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content

Recommended Content

Editors’ Picks

EUR/USD clings to strong daily gains, stays below 1.0700

EUR/USD clings to strong daily gains, stays below 1.0700

EUR/USD has gone into a consolidation phase after having climbed to its highest level in nearly a month at 1.0687 in the European session. ECB President Lagarde's hawkish comments and the broad-based selling pressure surrounding the dollar fueled the pair's rally at the beginning of the week.


GBP/USD retreats modestly after testing 1.2600

GBP/USD retreats modestly after testing 1.2600

GBP/USD has edged slightly lower after having tested 1.2600 in the European session. With the dollar facing heavy selling pressure in the risk-positive market environment, however, the pair clings to strong daily gains ahead of BOE Governor Bailey's speech.


Gold climbs to two-week high at $1,865 amid weaker USD

Gold climbs to two-week high at $1,865 amid weaker USD

Gold capitalizes on the improving market mood and the weakening dollar on Monday, trading at its highest level in two weeks above $1,860. The benchmark 10-year US Treasury bond yield is up more than 1%, limiting XAU/USD's upside for the time being.

Gold News

Cardano whales enter buying spree before the Vasil hard fork

Cardano whales enter buying spree before the Vasil hard fork

Cardano price is showing an interesting set up as it struggles to make a move above a crucial support level. A rejection could lead to a buying opportunity for patient investors before ADA explodes.

Read more

Week Ahead on Wall Street: Options expiry to the rescue on Friday but its official, we are in a bear market

Week Ahead on Wall Street: Options expiry to the rescue on Friday but its official, we are in a bear market

Another wild and volatile week which seems to be the tone so far for 2022. Wild swings throughout the week were mirrored on Friday with wild intraday swings. The S&P 500 did manage to slide into a bear market territory on Friday.

Read more