AUD powers through 0.72 as markets look beyond near-term headwinds

Daily Currency Update

The Australian dollar advanced back above 0.72 US cents as the shift in risk appetite that started Tuesday continued through trade on Wednesday. Anecdotal evidence that suggests the Omicron strain won’t have the same devastating effects as the Delta variant has buoyed market hopes for a shallower and shorter contraction in economic activity. Investors continue to play the long game anticipating a swift and extended recovery through 2022. Having moved off haven plays to chase risk assets; markets drove the AUD through resistance at 0.7170/80 and toward intraday highs at 0.7220. With liquidity fading into Christmas and volumes expected to be thin through the coming weeks, volatility across currency markets should subside. We expect the AUD will continue to bounce between 0.70 and 0.7250 with an extension in risk demand possibly prompting a drive toward 0.73. However, until we have hard scientific data surrounding the strength and severity of the Omicron variant, markets are likely to be wary of extending ranges. With hospitalisation rates at their highest 3-4 weeks after infection we expect to have real evidence from the UK, Europe and for our purposes NSW come early to mid-January.