Omicron concerns ease after volatile week
While the omicron variant keeps spreading rapidly around the globe, headlines that its symptoms are not as severe as previously feared, provided a breather to global markets on Monday after a bumpy week.
Of course, it is too early to draw final conclusions, and the Covid news will probably keep everyone on their toes for longer amid fears stricter lockdown measures could roll in again ahead of the holiday season. Yet, the less risks the omicron variant poses to economies, the larger the odds are for monetary tightening moving at a faster pace next year as inflation continues to spiral in several economies.
US nonfarm payrolls could not power the dollar index above the 97.00 level last week, but Powell’s recent surprising inflation warnings suggested the Fed may prioritize its price target over its employment goal in the coming months. Hence, the dollar bulls may have another opportunity to rally when November’s CPI figures come out on Friday, consequently reducing the fortunes for euro/dollar, which is still stuck below the 20-day simple moving average at 1.1330 for the fifth consecutive day.
BoE Deputy governor downplays rate increases
On the other hand, the pound held onto a slight advance, rotating back towards the $1.3300 number despite the BoE Deputy governor showing his discomfort at higher interest rates. Particularly, Ben Broadbent argued that inflation may exceed 5.0% in April, but subsequently price pressures could fade before potential rate hikes produce any effects.
Commodity currencies pare losses; RBA to stand pat on policy
The commodity currencies were in the green zone as well during the time of writing, with the loonie recouping some lost ground against the greenback thanks to the more-than 3.0% bounce in oil prices.
The Bank of Canada’s policy meeting could be the next challenge for the currency on Wednesday, but prior to that, the focus will be on the Reserve Bank of Australia (RBA), which is scheduled to announce its own policy decision on Tuesday at 03:30 GMT. Expectations are for the central bank to keep its guidance steady, leaving any bond tapering decisions for February as initially planned, and downplaying investors’ sharp pricing of four rate hikes in 2022. On the one hand, the uncertainty around the new omicron variant and the growth slowdown in China, where the PBOC delivered a 50 bp RRR cut today, are currently discouraging any tightening announcements. On the other hand, global risks are pointing to higher inflation in the coming months and with the economy facing a smaller-than-expected damage from its summer lockdowns, some hawkish twists cannot be ruled out.
Should the RBA stress the need for faster monetary tightening, aussie/dollar could extend today’s positive momentum up to the 0.7100 resistance.
Stock indices return to positive territory
Turning to stock markets, the Covid relief is currently putting some footing under major indices after a volatile week, with the pan-European STOXX 600 drifting northwards mainly on the back of energy and utility stocks. The Dow Jones and the S&P 500 are also set to open in positive territory, whereas the Nasdaq 100 could see a moderate pullback at the start of the US open according to US futures.
