Forex Market: AUD/USD rebounds from a two-week low as RBA expects Omicron will not derail recovery

AUD/USD rebounded from a two-week trough on Tuesday after the minutes from the Reserve Bank of Australia’s most recent policy meeting revealed an optimistic view that the Omicron virus strain was not expected to derail Australia’s economic recovery.

RBA policy makers reiterated they remained committed to keeping interest rates intact at a record low level of 0.10%, while considering how and when to taper bond purchases. This decision will take into account crucial macro data such as inflation, employment and spending, the document stated.

“The first option was to reduce the pace of purchases from mid-February with an expectation of a likely end point in May. The second option was to reduce the pace of purchases and review it again in May. The third option was to cease purchases altogether,” the RBA Minutes stated.

Meanwhile, the fast-spreading new COVID-19 variant has prompted more countries to impose tighter restrictions, including the Netherlands and Britain, while New Zealand announced it would postpone its phased border reopening to the end of February from mid-January.

And, in the United States, the Omicron virus strain already accounts for 73% of cases, sequencing data for last week from the Centers for Disease Control and Prevention showed.

As of 10:40 GMT on Tuesday AUD/USD was edging up 0.32% to trade at 0.7133, while moving within a daily range of 0.7098-0.7137. Yesterday the Forex pair slipped as low as 0.7082, which has been its weakest level since December 7th (0.7040). The major currency pair has edged up 0.12% so far in December, following a 5.22% loss in November.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -24.98 basis points (-0.2498%) as of 9:15 GMT on Tuesday, down from -24.2 basis points on December 20th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7108
R1 – 0.7135
R2 – 0.7159
R3 – 0.7186
R4 – 0.7212

S1 – 0.7084
S2 – 0.7058
S3 – 0.7033
S4 – 0.7008