Australian Dollar Dented by Market Omicron Fears

Australian Dollar (AUD) Struggles amid Omicron-Induced Volatility

The Australian Dollar (AUD) came under pressure at the start of the week as fears over the spread of the Omicron variant soured market sentiment, which in turn dented the risk-sensitive ‘Aussie’.

With tighter restrictions coming into force in many European countries, and the threat of more around the world looming, a wider market selloff over worries about global economic growth weakened the Australian Dollar.

Looking ahead, AUD exchange rates may claw back some losses this morning following the release of the Reserve Bank of Australia’s (RBA) minutes from its latest policy meeting, with investors looking for more insight into the central bank potentially tightening monetary policy as soon as February.

Pound (GBP) Slumps as UK Government Consider Covid Measures

The Pound (GBP) weakened sharply during Monday’s European session as the likelihood appears to grow that the UK government is on the cusp of reintroducing far tighter Covid measures in England following recommendations for restrictions from the UK’s Scientific Advisory Group for Emergencies (Sage).

Comments from Health Secretary Sajid Javid and Deputy Prime Minister Dominic Raab fuelled speculation of more restrictions before Christmas ahead of an emergency cabinet meeting as UK coronavirus cases remain near record highs.

The threat of more restrictions will likely continue to hang over the Pound through today’s session.

Euro (EUR) Soars on USD Weakness and Safe-Haven Demand

The Euro (EUR) surged at the start of the week, receiving support from its negative correlation with a weaker US Dollar and aided by demand for safe-haven assets amid the wider market selloff.

However, the single currency’s gains appeared capped by lingering concerns over further restrictions in countries in the Eurozone after the Netherlands imposed strict measures over the weekend.

Eurozone consumer confidence data released tonight may pare Euro gains as forecasts point to the index hitting an eight-month low.

US Dollar (USD) Undermined by Softening US Treasury Yields

The US Dollar (USD) struggled on Monday as falling US Treasury yields dragged the ‘Greenback’ lower amid the market selloff.

News that US Democrat Senator Joe Manchin would not support Joe Biden’s $1.75 trillion spending bill also dented the US Dollar, as the likelihood of the legislation passing the US Senate dropped significantly, and in turn could lower US growth forecasts at the start of 2022.

In the absence of notable US data releases through today’s session, market sentiment and developments in the US domestic investment bill will likely drive USD movement.

Canadian Dollar (CAD) Falls Sharply as Oil Prices Slide

The oil-sensitive Canadian Dollar (CAD) plunged at the start of this week’s session as crude prices slid on fears that the spread of the Omicron variant will drastically reduce fuel demand.

WTI crude fell by over 5% to under $67 a barrel, before recovering slightly amid the risk-off mood sweeping markets.

Canadian retail sales figures released tonight may provide the ‘Loonie’ with modest support as October’s figures are expected to have grown 1% after September’s 0.6% contraction.

New Zealand Dollar (NZD) Tumbles in Risk-Off Trade

The New Zealand Dollar (NZD) suffered significant losses on Monday as the risk-sensitive currency got caught up in the market flight to safe-haven assets.

Consumer confidence data released this morning may allow the ‘Kiwi’ to limit its losses by December’s reading improving on November’s figure, but market sentiment driven by Covid-19 lockdown fears will likely remain the key driver in NZD.

As more countries announce tighter restrictions and lockdowns, the global economic growth outlook declines.

Data Releases

Dec 21st 10:30 AUD RBA Meeting Minutes
Dec 21st 21:00 GBP CBI Distributive Trades (Dec) 13
Dec 21st 23:30 CAD Retail Sales (Oct) 1%
22nd Dec 01:00 EUR Consumer Confidence (Dec) -8


Mathew Andrews