- AUD / USD fell below 0.7250 in recent trading as lower stocks / and Australian Omicron concerns hurt the Aussie.
- Short-term economic weakness as a result of Ómicron may be enough to deter the RBA from eliminating QE in February.
The widespread risk aversion that has seen global equity markets tumble for a second day on Thursday appears to be taking its toll on the Australian dollar, as well as potentially some internal troubles from the Australian pandemic. The AUD underperforming is now down more than 0.6% on the day against the US dollar, and the AUD/USD It recently fell below 0.7250 as traders ponder the economic impact of the rise in Omicron infections and whether it will have any bearing on the RBA’s upcoming policy decisions.
Australia’s November retail sales report this week showed a much stronger-than-expected rally as the Australian economy continued to open up from its third-quarter locks, solidifying expectations that, ahead of Omicron’s rapid spread, Australia’s economy had been growing strongly. However, after hitting record highs in December, Westpac said Friday that card spending in the country had fallen dramatically in the first two weeks of January. The RBA believes that Omicron is unlikely to derail Australia’s economic recovery, but recent weakness could encourage them not to abruptly phase out their QE purchases in February and instead choose to downsize and continue purchases through May.
Previous expectations that the current economic weakness may translate into a more dovish RBA result may well be one of the factors weighing on the AUD on Friday, along with the tone generally more in favor of risk aversion. In terms of the dollar side of the AUD / USD equation, the pair saw very little reaction to the latest (weaker than expected) US retail sales report and (weaker than expected) to the production figures. industrial. Generally speaking, the US dollar remains on a fragile footing despite this week’s aggressive line from FOMC members and consumer and producer inflation metrics. That suggests the upcoming University of Michigan Consumer Sentiment survey data (the preliminary release for January) is unlikely to generate much volatility in the forex market, but will still be worth watching.