AUD/USD conforms to choppy US dollar conditions, hits fresh weekly lows

• Amid a lack of fundamental drivers from Australia, AUD/USD is conforming to choppy, indecisive USD flows.
• Following a break below its recent uptrend, AUD/USD challenges support at 0.7241.

AUD/USD currently trades a little softer on the day, down around 30 pips or 0.5% and just above lows of the week at just below 0.7250, having hit a fresh weekly low of 0.7236 in recent trading.

AUD/USD conforms to USD flows amid lack of drivers from down under

FX markets have been choppy on Thursday, with USD largely trading with a lack of directional conviction. DXY is a little lower on the day and was unable to recapture the 93.00 mark, amid strength in the lowest yielding G10 currencies, EUR, JPY and CHF. However, the US dollar does hold onto reasonable gains vs the rest of its G10 peers and AUD has thus largely traded as a function of US dollar fluctuations, amid a lack of domestic fundamental drivers for the currency.

USD (and thus AUD/USD) was largely unresponsive to Thursday’s US CPI data, which saw Core CPI growth stall in October with MoM growth of 0.0% (below expectations for MoM price growth of 0.2%). Elsewhere, stronger than expected Weekly Initial Jobless Claims data failed to shift the dial for USD, as did comments from Fed Chair Powell that although the vaccine is good news in the medium term, he is still concerned by the rise in cases being witnessed across the US right now.

FX markets instead seem to be in the process of weighing up the broader but contrasting narratives of a more bearish short-term outlook versus a more bullish outlook for 2021.

Global stock markets, in particular, have been very bullish for the most part this month, initially on Joe Biden’s election victory over current US President Donald Trump, which boosted hopes, then making further gains amid vaccine hopes this week. The hopes underpinning recent gains is that lockdowns will end sooner than previously anticipated due to earlier-than-expected widespread vaccination and the next four years will see a return to more favourable global trade and economic growth conditions under a less protectionist Biden administration.

However, clouding the near-term outlook is the Covid-19 pandemic, which is spreading at an alarming rate in the US. Indeed, new infections hit a record high 142k yesterday, up 69% over the past 14 days, meanwhile, deaths were at 1400 yesterday, up 36% over the past 14 days. Various states have already started tightening economic restrictions, with New York announcing on Wednesday a new curfew for businesses and Detroit schools on Thursday announced the closure of face-to-face learning.

Fears that, in the absence of a coordinated national plan to tackle the virus (in contrast to what is being seen in Europe, much of which has gone back into national level lockdowns to stop the spread of the virus), the pandemic looks set to continue worsening over the course of the winter in the US.

US President-elect Joe Biden is talking about a four to six-week lockdown when he takes office to get the virus under control. Many analysts feel that these risks to the near-term economic outlook might not be adequately being priced in by equity markets and by risk-sensitive currencies such as AUD.

AUD/USD tests support after breaking beneath recent uptrend

AUD/USD broke beneath its recent uptrend linking the 3 November high and 6, 10 and 11 November lows during Thursday’s Asia session. The pair then proceeded to hit fresh lows on the week of below 0.7250.

Although AUD/USD has since recovered back to within today’s ranges, the door has been opened for a decisive break of support at the 9 October high at 0.7241.

AUD/USD additional levels