Australian dollar dips below 71 line

Risk sentiment has cooled down, which has meant losses for the Australian dollar and other currencies which are key risk barometers. The Aussie was down 0.84% on Friday and dropped below the 71 level earlier today after some negative headlines on the weekend. First, the Omicron variant is exploding in Europe, leading to a lockdown in the Netherlands and tighter health restrictions in other European countries. Omicron has also reached the US and could surge there as well.

Adding to investor jitters, President Biden’s Build Back Better spending package is dead in the water after Democratic Senator Joe Manchin surprised the White House when he announced that he could not support the USD 2 trillion package, a key part of Biden’s agenda. The Democrats had trimmed the programme in order to gain Manchin’s support and Biden had hoped to pass the bill before the Christmas break. Now, Biden will have to wait until after the New Year, depriving him of a badly needed legislative victory.

The RBA will release the minutes of its last policy meeting on Tuesday. I don’t expect anything new from the bank, which is likely to stick with its accommodative policy, even with last week’s monster employment report of 366 thousand new jobs. The stellar numbers were a result of the lifting of the lockdowns in New South Wales and Victoria. Still, the employment report did not show any indication of wage growth, which is a key metric for the RBA as far as rate policy. The central bank has stated that it wants to see wage growth at around 3% before it will consider further reducing QE and doesn’t see a rate hike before 2022. The markets have been much more hawkish, pricing in several rate hikes next year.

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AUD/USD Technical

• There are support levels at 0.7069 and 0.7013
• AUD/USD faces resistance at 0.7203. The next resistance line is at 0.7281

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