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Monthly Wrap: AUD - AUD rocked by Omicron concerns, hawkish RBA fuels recovery

currency-newsMonthly Wrap: AUD - AUD rocked by Omicron concerns, hawkish RBA fuels recovery
Key takeaways:

-              Australian dollar volatile as Omicron rocks market risk appetite
-              Cautious optimism from RBA prompts increased policy tightening bets
-              AUD Monthly lows: £0.52, $0.69, €0.61, NZ$1.03, C$0.89
-              AUD Monthly highs: £0.54, $0.73, €0.64, NZ$1.05, C$0.92
The Australian dollar has fluctuated in the last month after the emergence of the Omicron coronavirus variant rattled market risk appetite before easing concerns and cautious optimism from the Reserve Bank of Australia (RBA) helped the ‘Aussie’ recover.

News of the coronavirus variant of concern triggered a sharp market selloff of riskier assets that sent the risk-sensitive Australian dollar sharply lower.

Underlying concerns over rising coronavirus numbers around the world going into winter had already weighed on market sentiment before reports broke of the Omicron variant first identified in South Africa.

However, AUD exchange rates were able to recover their losses going into the second week of December after risk appetite picked up again.

Fears eased over the potential impact of the Omicron variant on global economic activity after Pfizer/BioNTech claimed tests showed three doses of its vaccine provided a high level of protection against the new coronavirus variant, prompting sharp accelerations of booster vaccinations.

At the same time, a change in tone from the RBA, despite the Omicron variant acting as a ‘source of uncertainty, bolstered the Australian dollar to recover its Omicron-driven losses.

Cautious optimism from Australia’s central bank fuelled speculation it may end its quantitative easing programme early next year, potentially paving the way for the RBA to raise interest rates in 2023, earlier than previously signalled.

Looking ahead, the Australian dollar looks set to remain sensitive to shifting market sentiment as more data on the Omicron variant will provide better insight into its potential impact on the global economic recovery.

Elsewhere AUD investors will be keeping a close eye on domestic data, with signs the Australia economy is on the road to recovery following the lockdowns over the summer, potentially providing the RBA with more evidence that it could tighten monetary policy sooner.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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