Positive risk sentiment catapults AUD back through 0.71

Daily Currency Update

Risk sentiment improved through trade on Tuesday, extending Monday’s turnaround and catapulting the AUD back through 0.71 US cents. Commodity currencies were again the beneficiaries of a positive risk on move, outperforming major counterparts to mark intraday highs at 0.7120. Market concerns surrounding the impacts of the Omicron variant on the broader global economic recovery have faded this week as anecdotal evidence continues to suggest the mutation while more contagious is no more severe or virulent than its predecessors, a hugely encouraging sign in the evolution of the COVID-19 virus.  Having tested lows at 0.7040 through the domestic session the AUD recovery accelerated through the afternoon with the RBA policy update offering little to disrupt the broader trend. Policymakers offered few surprises, maintaining the QE program into February 2022 while holding onto their commitment to lower interest rates through 2023. Markets did lean on a hawkish lilt within the Bank’s statement following the removal of key phrases and general belief Omicron will not derail the domestic recovery. Bond rates rallied in the wake of the policy update, as markets continue to price in a series of rate hikes through the next 18 months. Having tested a break below 0.70 on Friday last week, the AUD remain vulnerable to fluctuations within the risk narrative. As long as sentiment continues to turn positive, we expect the AUD will unwind much of the recent downturn and recapture ranges between 0.73 and 0.7550. However, a definitive risk off move will force the AUD back toward key supports and the psychological 0.70 US cent handle.