Aussie slips as business confidence slows

The Australian dollar has extended its losses on Tuesday, as the currency trades at the 71 level. The Aussie continues to struggle and is down 0.96% this week.

Business confidence weakens

Australian NAB Business Confidence slowed to 12 points in November, down sharply from a downwardly revised 20 points in October. Business confidence jumped after the lockdowns were lifted, and has now “come back to earth a little”, in the words of the NAB. Although the recovery remains in good shape, Australia is seeing a spike in Covid cases, due to the Omicron variant, which is 4.2 times more contagious than Delta. However, this time around Australia is highly vaccinated, and the uncertainty over Omicron is tempered somewhat by reports which show that the symptoms from Omicron are much milder than from Delta.

The RBA is in no rush to raise rates, with Governor Philip Lowe stating that the bank will maintain rates at the ultra-low level of 0.10% until inflation remains “sustainably” within the bank’s target band of 1-3%. At the last RBA policy meeting, the  bank said that Omicron was a new source of uncertainty but added that it should not derail the recovery. Still, Lowe may use the Omicron crisis to dampen market expectations of a rate hike, as investors have been more hawkish than Lowe above a rate hike, with several rate hikes priced in for 2022.

The FOMC holds a key policy meeting on Wednesday. With inflation running at its highest clip in 40 years, the Fed is even more likely to announce that it will double the pace of its taper, to US 30 billion/month. This means we can expect a rate hike in mid-2022, if not earlier. Investors will be paying close attention to the meeting’s dot plot, which should show that policymakers have become more hawkish about a rate hike compared to previous meetings.

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AUD/USD Technical

• There are support levels at 0.7052 and 0.6933
• AUD/USD faces resistance at 0.7239. The next resistance line is 0.7307

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