Aussie coming off sizzling week

Aussie rally ends 

The Australian dollar has taken a breather, as it trades just slightly below the 0.74 line. AUD/USD has posted small losses on Monday, after posting impressive gains of 2% last week.

The war in Ukraine has dampened risk appetite, which in normal times would hurt the risk-sensitive Australian dollar. These are, of course, far from normal times, and the surge in commodity prices has boosted the Aussie despite the lack of risk appetite on the part of investors.

The Australian economy continues to recover and the markets are expecting the RBA to embark on a rate-hike cycle in order to curb rising inflation. The RBA has said it wants to see inflation remain sustainably in its 2%-3% target and would like to see wage growth accelerate. There is a good chance that the RBA will hike rates in June or shortly after, and expectations of higher rates have also boosted the Australian dollar.

The week started on a positive note, as Australian Services PMI rose to 60.0 in February, up from 56.6 a month earlier. This points to strong expansion in the services sector, which is benefitting from pent-up demand after Covid lockdowns were removed. The employment market continues to show a shortage of workers, as ANZ Job Advertisements jumped by 8.4% in February, after two straight negative readings.

On Tuesday, we’ll get a look at NAB Business Confidence and Westpac Consumer Sentiment reports. Consumer confidence has been weak, with the past three releases all below zero, which indicates pessimism. Will we see a rebound in the upcoming release? RBA Governor Philip Lowe will speak at a business summit, and investors will be listening closely for any clues with regard to rate policy.

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AUD/USD Technical

• There is weak resistance at 0.7393. This is followed by a resistance line at 0.7502
• AUD/USD has weak support at 0.7313. Below, there is support at 0.7204

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