The AUDUSD pair had a sharp reversal in 2021 after its strong performance that happened in 2020. The pair is trading at 0.7260, which is about 9.35% below the highest level in 2021.
The Australian economy had a mixed year in 2021. Economic data published by the country’s statistics agency showed that the unemployment rate declined to 4.6% in November 2021. That was a significant improvement considering that the rate was at 7.4% in January 2021.
Other data pointed to the recovery of the economy. Perhaps, the most important one was the country’s home prices. Like in most developed countries, home prices surged as demand rose and inventories slumped. The low-interest-rate environment contributed to the strength of the industry.
The Australian home price index rose from 143.5 in January to 175.6 in December. In the past statements, the Reserve Bank of Australia (RBA) has pointed fingers to the national government for the higher prices.
Meanwhile, like in other countries, the Australian inflation rate is surging as demand rises and the supply chain disruptions remain. Higher energy prices have also helped to push the rate of inflation higher.
According to the Australian Bureau of Statistics (ABS), the country’s inflation rose to 3.0% year-on-year in the third quarter of the year. The RBA has an inflation target of 2.0%. In the past meeting, the bank said that the current inflation trend was transitory and that it will come back to 2.0% in the coming year.
Covid risks remain
The Australian government has been successful in its handling of the Covid-19 pandemic. The total number of cases has been a bit smaller than that of comparable countries like the UK and Germany.
The country experienced a surge of cases in the third quarter leading to lockdowns in New South Wales (NSW). The impact of these lockdowns was dire since they led to the disruption of the swift economic recovery.
In 2022, the Covid-19 risks will be a thorn in the flesh for Australia and US policymakers. In the past few days, the number of Omicron cases in Australia has risen. As such, there is a possibility that the country’s government will continue having limits on foreign arrivals.
The ongoing Covid-19 wave will lead to more supply-chain disruptions, which will lead to higher prices. Still, there is a likelihood that the country’s economy will recover, considering that the Omicron variant is milder than the other ones.
RBA and Fed convergence
There will likely be a convergence between the Federal Reserve and the Reserve Bank of Australia (RBA), which will have an impact on the AUDUSD.
In its recent decision, the Fed has hinted that it will start hiking rates in 2022. The dot plot hinted that the bank will implement about three rate hikes and then end the QE. The RBA, on the other hand, is expected to implement about three or four rate hikes.
The daily chart shows that the AUDUSD pair has been in a steady bullish trend in the past few days. The pair has risen by about 3.85% from its lowest level this year. Along the way, the pair has moved above the 23.6% Fibonacci retracement level. It has also moved slightly above the 25-day and 50-day moving averages. Therefore, the pair will likely keep rising in the first part of the year and then resume the downward trend.