The AUD/USD pair reversed an early dip and was last seen trading near the monthly top, around the 0.7215-20 region heading into the European session.
The pair attracted fresh buying near the 0.7185 regions on Thursday and is now looking to build on this week’s goodish rebound from the 0.7080 area, or the lowest level since December 7. Easing concerns that the new fast-spreading variant could derail the economic recovery turned out to be a key factor that acted as a tailwind for the perceived riskier Aussie. This, along with subdued US dollar demand, extended some support to the AUD/USD pair.
The AUD/USD pair rose as investors turned optimistic after reports indicated that the current vaccines may be more effective than first thought in fighting the new COVID-19 variant. Moreover, news from a South African study suggested reduced risks of hospitalization and severe disease in people infected with Omicron compared with the Delta strain. The two reports were from the United Kingdom and South Africa. This, in turn, led to a fresh wave of a risk-on trade in the equity markets, which undermined the safe-haven greenback.
The pair rose even after the relatively positive numbers from the United States. For example, data published by the Conference Board showed that the country’s consumer confidence rose from 111.9 in November to 115.8 in December. This was the highest level in a few months even as inflation continued to rise.
The AUD/USD also rose after the US published the final reading of the third-quarter GDP. Economic data showed that the economy expanded by 2.3% in Q3. This was a better estimate than the previous estimate of 2.1%.
The US also published relatively strong housing data. Existing home sales rose from 6.34 million in October to more than 6.46 million. The number has been in an upward trend this year as interest rates remain low. Later today, the US will publish the latest new home sales data.
That said, the Fed’s hawkish outlook should help limit any meaningful downside for the USD and cap the upside for the AUD/USD pair, at least for the time being. It is worth recalling that the so-called dot-plot indicated that the Fed could hike interest rates at least three times next year. The mixed fundamental backdrop might hold back traders from placing fresh bullish bets around the AUD/USD pair amid thin liquidity ahead of the year-end holiday season.
The other numbers that will move the AUD/USD pair today will be the latest new home sales data, initial jobless claims, and durable goods data. These numbers are expected to be relatively strong. Still, the impact of the data on the AUD/USD will be relatively limited because the Fed has already hinted that it will be hawkish in the coming year.
Market participants now look forward to the US economic docket – highlighting the release of Core PCE Price Index and Durable Goods Orders data later during the early North American session. This, along with developments surrounding the coronavirus saga, will drive the USD demand and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.
AUD/USD Long (Buy)
Enter At: 0.72658