AUD/USD set to end week on a sour note as risk appetite fades, though 21DMA at 0.7150 offering support

AUD/USD has been ebbing lower in recent trade with markets set to end the week on a risk-averse note, though the pair’s losses are for now being cushioned by the 21-day moving average at 0.7151 and as trading volumes ebb. At present, the pair is trading in the 0.7160s, down about 0.2% on the session. Market participants are exhausted after an unusually busy week that saw six G10 central banks announce monetary policy as well as a number of key G10 data releases. In wake of all that and with the weekend fast approaching, trading volumes have declined substantially and, amid an empty economic calendar for the remainder of the day, FX market trading conditions are likely to remain highly subdued.

As far as AUD/USD was concerned, the most important events this week was Wednesday’s Fed policy announcement and Thursday’s Australian November jobs report. In wake of the Fed announcement, the US dollar was hit, pushing AUD/USD from weekly lows under 0.7100 to fresh weekly highs above 0.7200 on Thursday, despite the confirming expectations for a doubling of the QE taper pace and indicating three hikes in 2022. Whilst the Fed was hawkish on the face of it, Jerome Powell made clear in the press conference that monetary tightening at the indicated pace was dependant on the economy progressing as expected. The Fed is bullish on the US economy in 2022, but Powell’s reassurance that if things don’t go quite as well, the bank can delay rate hikes, seemed to be taken as dovish, sending the dollar lower.

A much stronger than expected November labour market report out of Australia contributed to the upside into Thursday’s session that saw AUD/USD reach as high as the 0.7220s. Recall that a record 366.1K jobs were created in Australia last month, pushing the unemployment rate to 4.6% and boosting the case for the RBA to end its QE outright next February. According to analysts at ANZ, "with the labour market data coming in much stronger than the RBA expected and a revision in other forecasts likely, an end to QE altogether in February is the most likely option in our view”.

AUD/USD looks set to close out the week flat and close to the centre of a 0.7090-0.7220ish range. While a potential hawkish pivot from the RBA next year may be one reason to bet on an improvement in the Aussie fortunes, Omicron continues to pose a threat via the fact that it could still severely dent macro risk appetite (hurting risk-sensitive AUD) and also given it is fast spreading in Australia. Daily reported infections in the most populous state New South Wales spiked to record highs above 2K on Thursday up from under 300 at the start of the month and look set to go higher.