AUD slips below 72, consumer confidence next

The Australian dollar has dropped below the 0.72 level on Tuesday. In the North American session, AUD/USD is trading at 0.7180, down 0.42% on the day.

US yields on the move

The US dollar is broadly higher today, buoyed by a jump in US bond yields after Monday’s holiday in the US. The 10-year rate has pushed above 1.80% while the 2-year yield has punched above 1% – both yields have climbed to a two-year high. The rise in yields is a result of market concerns that the Federal Reserve will become more aggressive in its tightening. FOMC member Patrick Harker said last week that the Fed could raise rates three or four times this year, adding that inflation has been more persistent than previously expected. The CEO of JP Morgan, Jamie Dimon, went even further, saying that we could see six or seven rate hikes in 2022, due to surging inflation.

The Fed is currently in a no-comment “blackout” period ahead of next week’s policy meeting, so it will be interesting to see if yields continue to move towards the psychologically important 2% level, which has held since July 2019.

Australia will release Westpac Consumer Sentiment for January in Wednesday’s Asian session. The December reading disappointed with a decline of -1.0% and another decline could sour sentiment towards the Australian dollar. An ANZ consumer confidence survey released last week found that consumer confidence plunged 7.6%, with Omicron to blame for a sharp drop in consumer activity. A separate ANZ report noted that the Australian consumer is suffering from an “Omicron malaise in spending”, and that could mean trouble for the Australian economy, as consumer spending is a key driver of growth. The major banks are planning to revise downward their growth forecasts and Commbank has already lowered its Q1 forecast QoQ from 2.3% to just 1.0%.

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AUD/USD Technical

• There is resistance at 0.7304 and 0.7392
• AUD/USD has support at 0.7139 and 0.7062

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