- US dollar strength eases amid a risk-on mood
- AUDUSD bounces bank after RBA
- USDJPY upside action resumes
The US dollar eased slightly on Tuesday, pulling back after risk sentiment improved in the market. The pullback in dollar strength came at the backdrop of reassuring news on the Omicron COVID-19 variant. Reports that Omicron patients only have mild symptoms have once again eased fears that had triggered a race towards safe-havens.
However, the dollar continues to hold firm at 16-month highs, the dollar index having stabilized and found support above the 96.00 handle. In addition, dollar strength remains well supported by rising yields amid expectations that the FED could hike interest rates early next year to curb rising inflation.
AUDUSD technical analysis
Amid the dollar softness, AUDUSD bounced back from one-year lows, powering and finding support above the 0.7000 level. The pair has been licking its wounds in recent days, coming under pressure as traders scampered for safety in the US dollar and Japanese yen.
After dropping to one-year lows of 0.6988 AUDUSD has bounced back, finding support above the 0.7000 level. With bulls in control in the short term, the pair could make a run for the 0.7112 mark, seen as the next potential resistance level. On the flip side, a slide followed by a close below the 0.7030 level could trigger renewed sell-off that could see the pair sliding back to one-year lows.
The AUDUSD rallied Tuesday morning on the heels of the Reserve Bank of Australia maintaining highly supportive monetary conditions in response to the prevailing economic situation amid the unending COVID-19 debacle. The bank retained the cash rate at a record low of 0.10% during their December Monetary policy.
Additionally, the central bank decided to maintain the interest rate in exchange settlement balances at zero percent. It will also continue its purchase of government securities at the rate of $4 billion a week until early next year.
In addition, the central bank reiterated that the Australian economy continues to recover from the disruptions triggered by the Delta outbreak, something that appears to have strengthened AUD sentiments against the dollar. However, Omicron is still a point of concern that could rattle investors’ sentiments on riskier currencies such as the AUD.
Meanwhile, USDJPY has powered through a tight trading range of between 113.45 and 113.55. The pair has powered to session highs of 113.72, waiting to see if the upward momentum has what it takes to rally to highs of 114.00.
USDJPY had come under immense pressure as traders opted for the Japanese yen as a hedge against the uncertainty triggered by the Omicron Covid variant. The pair pulled back from three and half year highs above 115.00 to lows of 112.48 late last month.
However, with the dollar strength remaining intact amid waning Omicron variant concerns, a rally to the 114.00 looks to be on the cards. Standing in the way of bulls steering a rally to highs of 114.00 is the 113.90, the immediate short-term resistance. A breakthrough in the resistance level could trigger renewed buying pressure to highs of 114.40. On the flipside, 113.30 is the short-term support level.
The rally on the USDJPY comes at the backdrop of disappointing economic data out of Japan that continues to fuel yen weakness against the dollar. Japan’s Overall Household Spending for October fell for a third consecutive month to -0.6%.
However, the buildup in risk-on mood in the market continues to fuel the upside action on the USDJPY pair. Growing hopes of companies coming up with a cure for the Omicron variant continues to scatter demand for safe havens such as the Japanese yen.