The Australian dollar, considered a so-called commodity currency, seems to be recovering. Central bank actions may be contributing to this, as well as rising oil prices.
At its last meeting in 2021. The Reserve Bank of Australia kept the interest rate (for the 13th month in a row) at a record low level of 0.1 percent. It was a move in line with market expectations. Bank officials reasoned that while inflation has increased, it remains low in underlying terms. Policymakers noted that with modest wage growth, inflationary pressures are less than in many other countries.
Are low rates serving the Australian dollar?
The Bank Board has reiterated that it will not raise the cash rate until real inflation in Australia is permanently within its target range of 2-3 percent. The labor market is also expected to be strong enough to generate significantly higher wage growth than it is now, and that is likely to take some time, hence the Bank Board is armed with patience.
The Reserve Bank of Australia will continue to buy government bonds at a rate of AUD 4 billion per week until February, when it will review the operation. The Bank does not expect the omicron to impede Australia's economic recovery.
The Australian dollar seems to have been gaining value for the past two days. This week AUD/USD first fell to its lowest level in more than a year, testing 0.7000, but after the Bank's announcement AUD/USD already reached 0.7100, which seems to be the biggest increase since the end of October.
Omicron not so dangerous, oil up
Oil prices are also rising. WTI crude futures climbed more than 2 percent to above $71 a barrel on Tuesday, extending a nearly 5 percent rebound in the previous session as concerns over the coronavirus omicron variant and its impact on global economic growth and fuel demand eased. Saudi Arabia lifted monthly oil prices in Asia and the U.S. on Sunday.
Earlier, crude prices may have fallen due to uncertainty over the new variant of the coronavirus and its economic implications, but also in reaction to the announcement that major oil-consuming countries would release strategic crude reserves.
A representative from the health ministry of South Africa, which was one of the first outbreaks of omicron, said over the weekend that cases infected with the new coronavirus mutation showed only mild symptoms. Anthony Fauci, the top U.S. infectious disease official, said in turn that preliminary data on the new variant did not appear alarming.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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