Westpac's updated outlook for the Australian dollar:
- headwinds have strengthened early in 2022. US inflation at 7% and unemployment below 4% have reinforced the Fed’s tightening bias, with a March rate hike almost fully priced. This should provide solid support for the US dollar, helping cap AUD/USD rallies into the 0.73 area.
- While 10 year AU-US yields spreads are range-bound, the 2 year area continues to trend in the US dollar’s favour.
- The 1 February Reserve Bank of Australia meeting is major event risk but Omicron has dampened Australia’s hoped-for summer economic revival, suggesting no hawkish turn.
- The Aussie’s commodity price support is mostly still elevated, with large trade surpluses continuing. But China’s rate cut only adds to investor unease over its growth outlook.
- Risks to the 0.70 handle multi-week, end-March forecast 0.71.
Weekly AUD/USD candles: