The Australian dollar has extended today's gain to 40 pips and a session high of 0.7150. The latest move comes as the S&P 500 extends its gain to 74 points, or a hefty 1.6%.
This is a total turnaround from the worries about omicron and US fiscal spending yesterday. Will it continue?
AUD/JPY is a good barometer of deeper sentiment and the pair remains in the lower half of the range over the past few months. Until there's more clarity on the severity of omicron it will remain there. That said, every day continues to point towards less severe symptoms and even with ultra-high infection rates, I believe the market will continue to cheer that paradigm.
Technically though, I'd like to see a three candle reversal today. That would have to get to a close above 81.75. We're also perilously close to year end so it's not a great to be putting on trades.
For next year, my chief concern remains omicron in China and the potential for accompanying lockdowns and bottlenecks. The risk is particularly high through lunar new year and the Olympics.
However once China shifts into a mode of living with covid (along with the rest of the world) the odds of stimulus domestically are rising and that will filter through into commodities and commodity currencies like AUD. Moreover, if the countries can repair relatoins, there's further upside.
For now though, the trade is to watch, wait and see how omicron unfolds in China.
