AUD/USD extends pullback from monthly high towards 0.7200 amid Omicron woes

AUD/USD remains on the back foot around 0.7220, stretching Friday’s pullback from the monthly top during the early Monday morning in Asia.

The risk barometer portrays the market’s sour sentiment as the COVID-19 variant linked to South Africa, dubbed as Omicron, ruins the Christmas celebrations. Adding to the bearish bias are the escalating geopolitical tensions between Russia and Ukraine. However, an off in multiple global markets, including Australia, limits the liquidity in the market amid an absence of major data/events.

“Airline carriers globally scrapped at least 2,401 flights on Friday, which fell on Christmas Eve and is typically a heavy day for air travel, according to a running tally on the flight-tracking website FlightAware.com,” said Reuters during its latest report. “Commercial airlines around the world canceled more than 4,500 flights over the Christmas weekend, as a mounting wave of COVID-19 infections driven by the Omicron variant created greater uncertainty and misery for holiday travelers,” adds the news.

On December 25, China reported 206 new COVID-19 cases versus 140 the previous day whereas Australia’s most populous state New South Wales (NSW) unfortunately reported a new high in coronavirus infections, to 6,394, while ABC news cites 36% fall in tests. It’s worth noting that South Australia announced new activity restrictions considering a record 774 infections, per ABC news. On a broader front, Reuters’ tally signals, “More than 279.06 million people have been reported to be infected by the novel coronavirus globally and 5,693,749​ have died.”

Elsewhere, Russia-Ukraine tussles couldn’t benefit from Moscow’s withdrawal of 10,000 tops from drill near Kyiv, term as Christmas de-escalation by The Guardian. While US Vice President Kamala Harris said on the CBS interview that the US and Russia are in talks about Ukraine, German officials will hold a meeting with their Russian counterpart for the same on Monday.

Alternatively, US VP Harris sounds optimistic about getting President Joe Biden’s Build Back Better (BBB) plan despite the latest challenges raised by Senator Joe Manchin. Goldman Sachs raised doubt on the issue while saying, “While Congress is likely to approve some new spending on manufacturing and supply chain-related incentives, we no longer expect the Senate to pass the Build Back Better bill and the near-term spending it includes on the extension of the expanded child tax credit"

Also, a report from Mastercard, shared by Reuters, shows that the US retail sales rose 8.5% during this year's holiday shopping season from Nov. 1 to Dec. 24.

It’s worth noting that the bond markets were off on Friday and the equities were open for a short session and hence couldn’t offer much direction to the AUD/USD prices. Also, the holiday mood, light calendar and off in Australia add to the trading barriers. Even so, fears relating to the Omicron, uncertainty over the US BBB stimulus plan and geopolitical tension between Russia and Ukraine may weigh on the Aussie pair for the short term.

Technical analysis

AUD/USD fails to extend the upside break of 200-SMA beyond a monthly resistance line as the MACD teases bears and RSI flirts with the overbought territory. This, in turn, hints at a pullback towards the key SMA level surrounding 0.7180 and then to 100-SMA near 0.7135. However, bears may wait for a clear break of horizontal support from November 30, close to 0.7090, for confirmation before challenging the yearly low of 0.6993.

Meanwhile, an upside clearance of the stated resistance line, around 0.7255, will need validation from the November 12 low of 0.7274 before pulling the trigger for 0.7370.