Australian Dollar Struggles as Omicron Fears Fuels Risk-Off Trade

Australian Dollar (AUD) Slips amid Risk-Off Mood

The Australian Dollar (AUD) ended last week struggling for direction as market risk appetite declined after central bank interest rate decision driven movement on Thursday.

Global Omicron variant fears and new US trade curbs and sanctions against China fuelled a risk-off mood that weighed on the risk-sensitive ‘Aussie’.

In the lead up to Christmas, the minutes from the Reserve Bank of Australia’s (RBA) latest policy meeting will likely drive the most movement in AUD, with investors looking for hints the central bank could tighten monetary policy sooner than previously indicated.

Pound (GBP) Struggles amid Omicron Fears

The Pound (GBP) was on the back foot during Friday’s session despite UK retail sales for November coming in above forecasts at 1.4%, up from 1.1% in October, as UK Prime Minister Boris Johnson warned of a ‘considerable wave’ of the Omicron variant.

Fears over the impact of the Omicron variant on UK economic activity offset the retail figures, with the threat of tighter restrictions and December’s services PMI data suggesting UK GDP growth is slowing.

Ahead of UK GDP third quarter data released on Wednesday, the Pound will remain sensitive to the UK’s Covid-19 situation as daily case rates in the country hit record highs.

Euro (EUR) Weakens as German Business Morale Declines

The Euro (EUR) came under pressure at the end of last week after Germany’s Ifo business climate index for December fell more than expected for the sixth consecutive month to a 10-month low.

Business morale in the Eurozone’s powerhouse economy tumbled as a fourth wave of Covid-19 disrupts economic activity due to renewed restrictions.

Looking ahead, December’s Eurozone consumer confidence in the middle of this week looks set to weigh on EUR exchange rates as Covid-19 fears are expected to push the index to a seven-month low.

US Dollar (USD) Strengthens on Safe-Haven Demand

The US Dollar (USD) firmed during Friday’s session as risk-off trade increased demand for the safe-haven currency.

Meanwhile, despite the Federal Reserve meeting expectations by announcing a faster taper of its bond-buying programme in midweek, comments from chair Jerome Powell continued limiting USD after he said it would ‘not be appropriate to raise rates’ during the taper process.

With finalised US third quarter GDP data, the PCE price index, and durable goods orders figures released this week, the US Dollar looks set for more significant movement this week.

Canadian Dollar (CAD) Dented by Weaker Crude Prices

The oil-sensitive Canadian Dollar (CAD) weakened on Friday as WTI crude prices softened due to concerns the Omicron variant will hit oil demand.

Plans for OPEC+ to add 400,000 barrels to supply in January further weakened crude prices, although the organisation said they could meet before January to review the outlook.

Looking ahead, Canadian retail sales for October is the main data release this week, although CAD will remain sensitive to shifting oil prices.

New Zealand Dollar (NZD) Slides as Business Confidence Plunges

The New Zealand Dollar (NZD) tumbled at the end of last week’s session after the ANZ business outlook index plummeted far more than expected as New Zealand companies struggled with supply chain issues, inflationary pressure, and staff shortages.

Risk-off trade further dented the risk-sensitive ‘Kiwi’ as Omicron fears soured market mood.

New Zealand’s balance of trade for November released this morning looks set to drive NZD movement the country’s economy looks to recover from poor third quarter growth.

Data Releases

Dec 17th 21:00 GBP CBI Industrial Trends Orders (Dec) 19


Mathew Andrews