- AUD / USD gains some positive traction on Wednesday and extends recovery from yearly lows.
- A positive risk tone benefits the higher perceived risk AUD amid moderate USD demand.
- Rising expectations of a Fed rate hike acts as a tailwind for the USD and limits the pair’s rise.
The pair AUD / USD consolidates its intraday gains around the 0.7150 level at the start of the American session on Wednesday. At the time of writing, the pair is trading at 0.7155, up 0.38% on the day, after ADP data showed that 534,000 new jobs were created in November in the private sector of US and prior to ISM Manufacturing PMI release.
Global risk sentiment witnessed a positive turnaround on Wednesday as investors appear convinced that the latest variant of COVID-19, dubbed Omicron, would not derail the economic recovery. This was evident by a strong rally in the stock markets, which in turn benefited the higher perceived risk AUD. The optimistic market sentiment was further supported by the latest comments from the World Health Organization (WHO) official, saying that some early indications are that most cases of omicron are mild.
The official added that there is no need to develop a new vaccine and that manufacturers only need to make minor adjustments to current vaccines. Apart from this, a subdued action in the price of the US dollar allowed the AUD / USD pair to take advantage of the recovery of the previous day from the 0.7065-60 area, the lowest level since November 2020. That said, rising expectations for a more aggressive tightening of monetary policies by the Fed acted as a tailwind for the USD and limited any significant rise in the pair.
In fact, money markets began to price the possibility of at least a 50 basis point rate hike by the end of 2022 in reaction to the optimistic comments of the previous day from Fed Chairman Jerome Powell. Testifying before the Senate Banking Committee, Powell said that it is appropriate to consider concluding the reduction in asset purchases, perhaps a few months earlier. Powell also noted that it is time to drop the word “transitory” as the risk of persistently higher inflationary pressures rises.
Secondly, the Reserve Bank of Australia (RBA) has taken a more pessimistic stance and has done its best to push back expectations of a rate hike as early as next year. The divergent outlook for monetary policy between the RBA and the Fed prevented investors from opening aggressive bullish positions. This, in turn, warrants some caution before confirming that the AUD / USD has formed a bottom and positioning for any significant short-term bullish movements.
Regarding US data, ADP’s employment report showed an increase in private sector jobs of 534,000 in November, just above the 525,000 of the market consensus and slightly below the 570,000 in October.
Later in the session the ISM Manufacturing PMI. Apart from this, the Fed chairman, Jerome Powell, and the US Secretary of the Treasury, Janet Yellen, will provide joint testimony before the House Financial Services Committee, which could influence price dynamics around the USD and provide some boost to the AUD / USD pair. Investors will also take cues from broader market risk sentiment to seize some short-term opportunities.
AUD / USD technical levels
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