AUD/USD grinds lower around 0.7100 as Omicron weigh on sentiment

• AUD/USD remains on the back foot, retreats towards yearly low.
• Bears keeping reins despite firmer Aussie GDP, PMIs as US data, Fed hike gains more attention.
• Omicron-linked fears escalate ahead of Aussie Trade Balance for October.
• US Jobless Claims may offer additional catalysts during a likely pre-NFP trading lull.

AUD/USD licks its wounds around 0.7100, following a two-day downtrend, during early Thursday morning in Asia. In doing so, the Aussie pair consolidates weekly losses amid a quiet start to the Asia-Pacific trading session while waiting for Aussie trade numbers for October.

That said, spreading fears of the fresh covid variant and the hawkish Fed concerns are the key factors that recently weighed down the risk barometer pair.

Having found the first Omicron case in the US, Reuters ran a story quoting anonymous sources to mention the extension of the mask mandate. “US President Joe Biden's administration will extend requirements for travelers to wear masks on airplanes, trains and buses and at airports and train stations through mid-March to address ongoing COVID-19 risks,” said the news.

Previously, the World Health Organization (WHO) tried calming the virus woes with statements defending the current vaccines and marking less severe impacts of the COVID-19 strain.

Elsewhere, Australia Q3 GDP contracted lesser than forecast and the private PMIs were also upbeat for November but noting matches the firmer US figures that pushed the Federal Reserve (Fed) policymakers to stay hawkish. US ADP Employment Change and ISM Manufacturing PMI details for November ticked above market consensus of 525K and 61.0 respectively to 534K and 61.1 in that order.

Federal Reserve Chairman Jerome Powell reiterated his inflation fears but also said he still believes inflation will come down “meaningfully” in the second half of 2022, during testimony against a Senate Commission. On the other hand, the New York Times (NYT) quotes Federal Reserve Bank of New York President John C. Williams as saying, “Omicron could prolong supply and demand mismatches, causing some inflation pressures to last.”

The risk-off mood weighed on the Wall Street benchmarks but Treasury yields couldn’t benefit either, maybe due to the Fed’s less aggressive mood of late. Even so, S&P 500 Futures print mild gains by the press time.

Moving on, Australia Trade Balance for October, expected 11000M versus 12243M prior, will be in focus before the US Weekly Jobless Claims and Challenger Job Cuts for November. Above all, coronavirus updates will be the key for near-term direction during the pre-US jobs report trading lull.

Technical analysis

A five-week-old descending trend channel keeps AUD/USD bears hopeful until the quote stays below 0.7190. Adding to the upside filter is the 50-SMA and 23.6% Fibonacci retracement (Fibo.) of late October to November downside, around 0.7175-80. Meanwhile, the lower line of the stated channel and the yearly bottom, around 0.7075 and 0.7060 respectively, can entertain short-term traders.