17th August 2021- AUD/USD remains depressed after reversing Friday’s corrective pullback

Market Headlines

Markets were initially in a risk averse mood, following yesterday’s weak Chinese data, a softer US activity survey, and Covid concerns. Later, the S&P500 recovered from a 0.7% loss to a 0.1% gain to a fresh record high. The US dollar recovered slightly, while bond yields consolidated recent declines.

EUR slipped from 1.1790 to 1.1768. USD/JPY slipped from 109.40 to 109.11, the defensive yen outperforming. AUD roundtripped from 0.7340 to 0.7319 and back. NZD slipped from 0.7030 to 0.7011. AUD/NZD initially fell to 1.0424 – a nine-month low – before rebounding to 1.0460. US 2yr treasury yields ranged between 0.20% and 0.21%, while the 10yr yield fell from 1.28% to 1.22% before rebounding to 1.26%.

Commodities, Brent crude oil futures fell 1.2% to $70, copper fell 1.5%, and gold rose 0.5%. Iron ore rose 0.3% to $161.

Overnight Currency Range

Currency Pair Low High

AUD/USD 0.7319 0.7373

EUR/USD 1.1767 1.1800

GBP/USD 1.3828 1.3877

USD/JPY 109.11 109.75

NZD/USD 0.7011 0.7043

USD/CAD 1.2512 1.2583

USD/CNH 6.4745 6.4812

AUD/JPY 79.86 80.87

AUD/NZD 1.0425 1.0467

AUD Thoughts

AUD/USD holds onto the previous day’s bearish impulse around 0.7340 as Asian traders brace for Tuesday’s work. Among the key concerns, the spread of virus variant takes the front row as covid figures at home, as well as in the developed nations like the US, the UK and China, flash worrisome signs. While fears that the COVID-19 infections are likely to recall the early 2021 numbers in the global powerhouse weighed the traders’ mood, a yearly high of daily cases in Australia and extension of local lockdowns keep AUD/USD down, mainly due to its risk barometer status.

On the other hand, escalating tension over the Taliban’s takeover of Kabul and US President Joe Biden’s recent fears of such activities spreading out of Afghanistan, if not controlled, challenge the market sentiment. The Sino-American and the US-Iran jitters are also on the same line to challenge the mood and AUD/USD prices.

Furthermore, China’s Retail Sales and Industrial Production followed the US Michigan Consumer Sentiment Index to portray the growing fears of losing the economic momentum off the pandemic. The same could be witnessed in the latest softening of the US Empire State Manufacturing PMI for August, 18.3 versus 29.0.

Acting as an additional burden on the AUD/USD prices could be the chatters that the Fed is up for tapering in 2021. The latest comments were from Boston Federal Reserve President Eric Rosengren who said, per CNBC, “We have met the inflation criteria for tapering.”

As the risk catalysts occupy the driver’s seat and the RBA policymakers are neither expected nor eligible for a move, today’s RBA Minutes risk becoming a non-event for the AUD/USD traders. However, the US Retail Sales for July, expected -0.2% versus +0.6% prior, will be the key, followed by a speech from Fed Chair Jerome Powell at an online town hall event.

AUD/USD stays pressured below 21-DMA around 0.7365, followed by 0.7410-15 area comprising multiple levels marked since early July. However, a monthly support line near 0.7320 restricts the quote’s immediate downside, a break of which will quickly drag the quote to the yearly low surrounding 0.7290-85.

Event Risk Data Today

Australia August RBA minutes, the market will be looking for further colour around the bond purchase decision.

New Zealand: Market expectations that whole milk powder prices to fall 1.0% at the upcoming dairy auction, continuing the run of price declines.

Euro Area: Q2 GDP is set to confirm the initial print of 2.0%qtr.

UK: June ILO unemployment rate is expected to hold at 4.8%, with the extended furlough scheme continuing to provide support to the labour market.

US: Expectations July retail sales will soften by -0.2%, with the reopening likely to spur a consumer shift to leisure spending. July industrial production (market f/c: 0.5%). June business inventories (market f/c: 0.8%). August NAHB housing market index (market f/c: 80). Finally, Fed Chair Powell will be hosting a town hall with educators.

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