AUD/USD recovery runs out of steam in 0.7130s at 21DMA

• AUD/USD has run into resistance at its 21DMA in the 0.7130s after bouncing from APac lows at 0.7100.
• The RBA minutes delivered few surprises and the main driver for the pair this week will be US data on Thursday.
• Aside from that, Omicron remains a key market theme.

AUD/USD, which has spent most of the session gradually advancing since it found support during APac trade at the 0.7100 level, has now run into resistance in the 0.7130s at its 21-day moving average. That still leaves the pair trading higher by over 0.3% on the session. A break above the 21-day moving average could open the door to a further grind higher perhaps all the way as high as the 0.7200 level and last week’s highs at 0.7220 just above it. But traders will be cautious that it might be difficult for the pair to muster the strength for such a move over the coming session amid holiday-thinned liquidity conditions that look set to prevail into early January.

Indeed, across other G10 majors, range plays may well be the way to go and this might also be the story for AUD/USD. In that respect, recent lows just under the 0.7100 are likely to act as a floor. In terms of fundamental drivers, the main story is still Omicron as markets participants weigh up how much of an impact its spread is likely to have on the near-term economic outlook and how much, if at all, this will impact G10 central bank reaction functions in 2022. As far as the Fed and RBA are concerned, Omicron is not yet viewed as presenting a meaningful risk to long-term growth prospects in either the US or Australia. Indeed, it seems that although infection rates are picking up in both countries, authorities in both seem eager to avoid lockdown and stick to past pledges to “live with the virus”.

Sticking with the RBA, the minutes of the bank’s last confab were released during Asia Pacific hours. The minutes failed to stir a reaction in AUD amid a lack of surprises; the bank continues to support easy monetary policy and is mulling its options for the QE programme in February, which include a potential decision to axe it entirely. In terms of the rest of the week, the only data of note for AUD/USD traders will be a few releases on Thursday which include November Core PCE inflation, November Durable Goods Orders, the weekly jobless claims report and the preliminary University of Michigan estimate of US Consumer Sentiment in December. All of this should underly a strong, high inflation US economy, though the sentiment survey may reflect some creeping Omicron fears as the US braces for a wave of infections.