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AUDUSD Under Pressure on Omicron Fears As USDJPY Narrow Band Persist Ahead of FED Report

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AUDUSD Under Pressure on Omicron Fears As USDJPY Narrow Band Persist Ahead of FED Report
  • US Dollar strengthens to one-week highs ahead of FED report
  • AUDUSD under pressure amid omicron fears
  • USDJPY trading in a narrow band
  • Turkish Lira under pressure

The US dollar powered to one-week highs against the majors, Tuesday morning, amid expectations that the Federal Reserve will turn out hawkish this week. Uncertainty around the Omicron variant continues to fuel dollar demand as traders shun riskier currencies.

The dollar index, which measures the greenback strength against the majors, powered to highs of 96.33 ahead of the FED decision on Wednesday. However, the dollar strength is being curtailed by falling Treasury yields, with the 10-year yield struggling to power through the 1.50% level. The FED meeting is scheduled to headline a string of central bank reports amid calls for aggressive measures to tame runaway inflation.

AUDUSD pull back

Renewed dollar strength is the catalyst behind the sell-off on the AUDUSD pair, which has come under pressure this week. The pair has already touched lows of 0.7089 as the Australian dollar continues to lose ground against the resilient greenback.

Chart showing AUDUSD bounce back stalls

A close below the 0.7080 could trigger a sell-off to lows of 0.6990, a crucial support level. Similarly, bulls need to defend the 0.7100 level to avert further pullback. With the bearish bias remaining in place, the pair could come under pressure ahead of tomorrow’s FED decision

AUD sentiments have been weighed heavily by fears over the spread of the Omicron variant worldwide. New South Wales has already reported a spike in Covid cases. Fears of a new round of lockdowns continue to dent AUD sentiments in the market.

The UK reporting its first Omicron variant linked death and a return of mask mandate in California continue to trigger the fear barometer in the currency market. Consequently, a number of traders are scampering for safety in the safe haven, shunning the likes of the Australian dollar.

Additionally, the bearish bias on the AUDUSD has been triggered by disappointing economic data that continues to raise concerns about Australia’s economy. The latest is the mixed NAB Business Survey that adds to the pain. NAB Business Confidence eased to 12 from a previous 21.

USDJPY narrow band

Meanwhile, the USDJPY pair fell to lows of 113.49 after Japan’s central bank intervened to stem a rise in short-term interest rates. The BOJ offered the two schemes to pump a combined $97 billion via government bond purchases. The bank has also proposed the acquisition of an additional two trillion yen bonds.

Chart showing USDJPY narrow band

While the Japanese yen did strengthen following the purchases, it has lost some strength with the dollar holding firm across the board. The pair has since bounced back to highs of 113.67. So far, the pair has struggled to power through the 113.80 level, which has emerged as a crucial resistance level.

Growing fears about the Omicron variant have continued fuel demand for the Japanese yen as a safe haven, consequently averting strong price movements to the upside. Nonetheless, tomorrow’s FED decision could be crucial and could trigger a breakout from the current narrow band.

Meanwhile, the Turkish Lira remained under pressure at the start of the week, trading at highs of $13.85. the weakness came on the five-year Credit Default Swaps CDS jumping 13 basis points. President Tayyip Erdogan has already held meetings with the Governor of the central bank and newly appointed Finance minister to try and curtail a further fall off amid runaway inflation.

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