- AUD / USD is witnessing subdued price action during the early part of the European session.
- Omicron fears continue to weigh on investor sentiment and the perceived riskier AUD.
- The Fed’s rate hike expectations benefit the USD and limit the pair’s gains.
The pair AUD/USD lacks a firm directional bias and remains trapped within a narrow range around the 0.7100 level during the European session on Thursday.
A combination of divergent forces did not provide any significant boost to the AUD / USD pair and led to subdued and limited price action in a range on Thursday. The growing concerns about the spread of the omicron variant The coronavirus and its impact on the economic recovery continued to weigh on investor sentiment. This was evident by the cautious sentiment prevailing around the stock markets, which in turn acted as a headwind to the AUD May perceived risk.
Secondly, the US dollar, so far, has struggled to gain traction, which appears to be the only factor lending some support to the AUD / USD pair. That said, the markets’ conviction that the Fed will tighten its monetary policy sooner rather than later continued to provide some support to the USD. In fact, investors began pricing in the possibility of at least a 50 basis point rate hike in late 2022 in reaction to upbeat comments from Fed Chairman Jerome Powell.
Powell said it’s time to drop the word “transitory” as the risk of persistently higher inflation has risen. In addition, he noted that the Fed could accelerate the reduction of your asset purchases. This, coupled with the rally in US Treasury yields, should help jump-start demand for the USD. Therefore, limited price action in a range of the AUD / USD pair could still be classified as a bearish consolidation phase, supporting the prospect of an extension of the recent decline seen since the end of September.
Market participants are now awaiting the US economic calendar, which includes the release of Challenger job cuts and initial weekly jobless claims. This, coupled with speeches from influential FOMC members, will influence USD price dynamics and provide some boost to the AUD / USD pair. Investors will also take cues from developments around the coronavirus saga and broader market risk sentiment to seize some short-term opportunities around the AUD / USD pair.
AUD / USD technical levels