AUD/USD has extended the bounce towards 0.7100 on the expected RBA rate decision. The Reserve Bank of Australia has clearly positioned itself among those central banks that do not currently see the new variant as likely to truly dampen the recovery and policy plans. Economists at ING expect the aussie to enjoy gains in the coming weeks.

Aussie boosted by RBA's optimism

“Being the most oversold currency in G10, we are likely seeing some substantial squeezing of AUD shorts, triggered by the more upbeat mood of markets about the Omicron variant, positive signs from the Chinese economy (RRR cut and eased real estate curbs) and a quite optimistic tone by the RBA.”

“The rate announcement saw no changes to the main policy tools. However, policymakers characterised the Omicron variant as a ‘source of uncertainty’ that ‘is not expected to derail the recovery’ and stressed instead a strong recovery in the jobs market. This is ultimately allowing markets to speculate that the RBA may follow the example of the Bank of Canada and abruptly end asset purchases (rather than simply tapering again) at the February meeting.”

“With still a lot of short positions to be unwound, this is a notion that can continue to offer support to the Australian dollar in the coming weeks.”

 

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