AUD/USD set to test the 0.70 level by year-end – Westpac
16.12.2021, 08:55

AUD/USD set to test the 0.70 level by year-end – Westpac

Australia’s jobs surge adds to Reserve Bank of Australia (RBA) rate hike pricing but with core inflation and wages growth still muted, AUD is likely to struggle to extend rallies. Over the new year, AUD/USD risks a test of 0.7000 given hawkish Fed and Omicron, according to economists at Westpac.

Hawkish Fed vs uncertain RBA

“The Aussie’s tone into early January is likely to be determined by the US dollar mood and whether global risk appetite is unsettled by the spread of the Omicron variant. In this regard, we lean towards a firm US dollar, supported by the FOMC’s hawkish shift, robust US growth momentum and skittish equities as governments in major economies scramble to strike the right balance in response to Omicron. Another test of 0.7000 would not surprise around year-end.”

“The November labour force data showed the largest monthly rise in jobs on record, 366K. The unemployment rate tumbled from 5.2% to 4.6% and underemployment fell to a low since 2014. If the December survey is also robust and core CPI surprises to the strong side, then the aussie should rebound steeply in anticipation of a substantial hawkish turn by the RBA in February.” 

“Our base case is that the RBA continues to expect only a gradual rise in wages and inflation, such that it pushes back on markets eager to price in rate hikes from mid-2022. This should help keep a lid on AUD/USD rallies, with our March forecast just 0.7100.”

 

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