Forex Market: AUD/USD rebounds from two-week lows, Dollar Index holds gains on Fed rate hike expectations

AUD/USD rebounded from a two-week trough in light trade on Tuesday, but a surge in new daily COVID-19 cases to record levels weighed on the risk-sensitive Aussie Dollar as it may prompt Australia’s central bank to take a more dovish view.

The rapid spread of the Omicron variant, especially in the eastern states in Australia, has brought daily infections in the country to a new pandemic high of 47,799 on Tuesday, while hospitalizations in New South Wales, the most populous state, also registered a new peak at 1,344.

“We’ve seen a rapid surge in cases to more than 30,000 – the peak of previous waves, for context, in Australia was around 2,000 a day,” Goldman Sachs economist Andrew Tilton was quoted as saying by Reuters.

Last month, just prior to the Christmas holidays, the minutes from the Reserve Bank of Australia’s December meeting revealed an optimistic view that the Omicron virus strain was not expected to derail Australia’s economic recovery.

Meanwhile, after advancing 0.6% during the first trading day of the new year, the US Dollar was holding gains against major peers on Tuesday, as rate hike expectations from the Federal Reserve triggered a surge in US Treasury yields.

The yield on benchmark US 10-year government bonds rose to just above 1.63%, while the US Dollar Index was flat at 96.217 after earlier advancing to 96.334, its strongest level since December 29th 2021 (96.395).

As of 10:29 GMT on Tuesday AUD/USD was edging up 0.43% to trade at 0.7216, while moving within a daily range of 0.7185-0.7217. Yesterday the Forex pair slipped as low as 0.7184, which has been its weakest level since December 22nd (0.7121). In 2021, the major currency pair retreated 5.58%.

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 -38.88 basis points (-0.3888%) as of 9:15 GMT on Tuesday, up from -40.2 basis points on January 3rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7215
R1 – 0.7247
R2 – 0.7308
R3 – 0.7340
R4 – 0.7371

S1 – 0.7154
S2 – 0.7122
S3 – 0.7061
S4 – 0.6999