Overnight Headlines

*Asian stocks tick up from one-year low, China gains on RRR cut

*RBA’s Lowe sees recovery pushing though Omicron scare, boosts AUD

*Oil extends gains on Omicron calm, natural gas collapses  

*US stocks rebound as risk appetite improves

USD closed marginally higher as commodity currencies outperformed and havens lagged. The strong revival of risk sentiment saw AUD break its 5-day losing streak. Cautious optimism in the RBA statement has also helped the market mood. EUR fell for a third day in four and closed below 1.13 at 1.1285. GBP eked out a small gain even as the Deputy Governor gave a noncommittal view on rates.

US equities recovered after last week’s tumult with a rebound in some of the hardest hit sectors. Value stocks led the gains while growth continues to struggle with the Dow +1.9%, Nasdaq +0.9%. Stimulus in China is also helping as the central bank unleashed $188bn of liquidity. Alibaba shares have seen their biggest jump since June 2017. Both European and US futures are signalling a stronger open.

Market Thoughts – Risk sentiment improves

The broadest index of Asia-Pacific shares outside Japan is on course for its biggest jump in two months, after declining on Monday to the lowest level in one year. Policy easing by the People’s Bank of China is also demonstrating a more forceful approach to prevent an all-out domestic property market rout.

Data from South Africa show that there has been no surge in hospitalisations or deaths resulting from the Omicron variant’s emergence. This suggests that, so far, it is less dangerous than the Delta variant. Risk and commodity currencies should continue to outperform (AUD, NZD, CAD) with the yen and swissie underperforming as investors move away from havens.

Chart of the Day – AUD/USD picks up bids post-RBA

The RBA left their policy settings unchanged as expected. The bank is set to keep rates at 0.1% and weekly bond purchases intact until at least mid-February 2022. More interesting was their say on the Omicron variant which they believe was “a new source of uncertainty but is not expected to derail the recovery.” Policymakers emphasised household spending and business investment above the new variant.

AUD/USD posted a new cycle low below the key psychological 0.70 level last Friday.  The November 2020 bottom sits at 0.6991 which reinforces this level of support. But the pair was heavily oversold, and the bulls are now enjoying two rare days of gains this week.

Initial resistance at the 38.2% Fib level of the 2020 low to 2021 high is 0.7051. The August low at 0.7105 is the next resistance level to negotiate, then the September trough at 0.7169/70.