December 6, 2021 15:05:59
The aussie is bouncing today on the more positve risk mood, but it is the worst performing major currency so far in December. This tops off a year to forget for the risk-sensitive, high yielder which has been hit on a number of fronts.
Markets are of course nervous and volatile as we await more concrete news on Omicron. Weak risk sentiment and subdued price action in commodities have weighed on AUD/USD, even though iron ore has been relatively stronger recently.
The RBA meeting overnight is not expected to see any changes to policy settings. The focus will be on the wording of the statement and any views on the latest economic data. The bank is currently comfortable with its cautious stance regarding any rate hike and will be patient going forward, until the next policy meeting in February where markets will expect to see more guidance on its ongoing QE.
This central bank meeting kicks off the final ones of the year for many countries, with the all-important Fed next Wednesday. The bar seems quite high for a sustained AUD rally into that risk event due to Chair Powell’s hawkish shift last week and the anxious wait for hard evidence of the efficacy of existing vaccines against the Omicron variant. This will change quickly if the milder symptoms of Omicron are confirmed.
AUD/USD sinking below key long-term support
It’s worthwhile zooming out to the weekly price chart after such big one-way moves. We can see that after the spike high just above 0.80 in late February, the major has been in a downtrend, falling to 0.7105 in mid-August. The 100-week SMA offered some support and prices bounced to the 50-week SMA at 0.7555.
We’ve had five straight weeks of losses since then. Bearish momentum has taken prices though a few lines of support which now become resistance. Prices are currently just below the Fib level (38.2%) of the pandemic low in March 2020 to the high this February at 0.7051. The August low at 0.7105 is the next key resistance. Initial support is the November 2020 low at 0.6991.
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