AUD - Australian Dollar

Risk sentiment and volatility carried the day on Wednesday as uncertainty surrounding the Omicron variant remains front and centre. Risk appetite turned broadly positive with equity markets and AUD enjoying early gains extending toward intraday highs at 0.7170. Initial anecdotal evidence suggests the newest mutant strain of the COVID-19 virus may not be as transmissible or virulent as first feared, with vaccines affording good protection against severe disease. That said, it will be weeks before any real scientific evidence is available and until then we expect volatility will remain elevated as investors do their best to place bets on direction and the broader omicron impact. Despite the uptick in risk demand, the AUD was unable to hold onto domestic session gains, sliding back toward 0.71 US cents overnight.

Our attentions remain affixed to developments in the global health outlook, further correction in short end US yields and rising global rates as key markers for direction.

Key Movers

Volatility and the ebb and flow of market sentiment continue to steer near-term direction with commodity currencies enjoying early gains through trade on Wednesday before haven currencies regained the ascendency overnight. The US dollar clawed back against the euro forcing the common currency back toward 1.13 while the pound gave up 1.33 extending toward intraday lows at 1.3260. The yen however was the day's big winner, extending its recent risk-off rally, pushing the USD back below 113. The yen remains a key barometer of broader risk sentiment enjoying extended gains against risk correlated currencies the AUD and NZD. Further fluctuations across these crosses will help provide insight into the current status of the broader risk narrative. Our attentions today turn to US jobless claims, ahead of tomorrow’s Non-farm payroll print. Wednesday’s ADP private payroll data came in as expected and suggest labour market growth remains strong enough to support a faster pace of QE tapering. A surprise fall in labour market growth could derail the recent hawkish sentiment surrounding the Fed and its policy outlook.

Expected Ranges

AUD/USD: 0.7050 - 0.7170 ▼

AUD/EUR: 0.6230 - 0.6330 ▼

GBP/AUD: 1.8520 - 1.8750 ▲

AUD/NZD: 1.0390 - 1.0470 ▼

AUD/CAD: 0.9050 - 0.9130 ▼

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