Aussie rises as risk appetite rises

The Australian dollar has extended its rally for a third straight day. In the North American session, AUD/USD is trading at 0.7179, up 0.49% on the day. It’s looking all roses for the Aussie this week, which is up 1.49%.

The Australian government announced that it will reopen the international borders on February 21^st. The country hasn’t allowed any tourists in the country in two years, which has badly hurt the tourism sector. Visitors who are vaccinated will now be allowed entry, which should pump billions into Australia’s economy.

We are seeing a significant discrepancy in confidence levels between businesses and consumers. On Tuesday, NAB Business Confidence in February jumped 15 points to +3, after a miserable -12 reading in December. Consumers, on the other hand, did not share in the optimism. Westpac Consumer Sentiment for February declined 1.3%, marking a third straight drop. Covid health restrictions have eased and the labour market is strong, but this hasn’t boosted the mood amongst consumers. The likely culprits for the gloomy outlook are the continuing rise in the cost of living and financial pressures due to Covid and the possibility of higher interest rates this year.

In the US, surging inflation has become a major headache for Joe Biden as well as the Federal Reserve. Biden could face an angry backlash at the mid-term elections if gasoline and food prices continue to rise, and the Fed is hoping that a series of rate hikes will curb inflation back towards the 2% level, which seems like ancient history.

Those headaches could feel worse on Thursday, if inflation accelerates as expected. CPI hit 7.0% in December, and the consensus is for a gain of 7.3% for January. If inflation is within expectations or higher, the likelihood of a 50-basis point hike in March will increase. According to CME’s FedWatch, the markets have priced in a 75% chance of a 25-bps rise and a 25% chance of a 50-bps hike at the March meeting.

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AUD/USD Technical

• AUD/USD continues to rally and is testing resistance at 0.7168. Above, there is resistance at 0.7258
• There is support at 0.6987 and 0.6896

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