1st February 2021 - AUD/USD erases recovery gains after finding resistance near 0.7700

Good Morning,

Market Headlines

Markets attention was diverted away from the FX board, amid turmoil in equities. The American dollar benefited from a dismal market mood but traded within familiar levels against its European rivals. Commodity-linked currencies and the JPY were the most affected by risk-aversion.

GameStop shares soared amid retail investors’ actions gathered on social media looking for a short squeeze. The stock collapsed on Thursday as different brokers put restrictions in place on options trading, taking new positions and hiked margin levels. The frenzy grew as restricting trading borders illegality. Silver also fell under individual investors’ radar. The situation is far from over, and turmoil will likely extend into the upcoming days. Wall Street finished the week with sharp losses after reaching fresh January lows. US Treasury yields, however, ticked higher ahead of the close, posting modest gains on the back of generally encouraging US data.

Vaccine-related news added to the dismal mood. The one-shoot from Johnson & Johnson has proven 66% effective in phase three trials, while Pfizer’s CEO said that "there is a high possibility that future variants will elude vaccines." Despite delayed delivery, vaccines are rolling out and hopes are that immunity will boost growth in the second half of this year.

Gold and Oil gave up on Friday, weighed by equities. The bright metal settled at $ 1,847.50 a troy ounce, while WTI finished at $52.10 a barrel.

Overnight Currency Ranges

AUD/USD: 0.7632 – 0.7703

EUR/USD: 1.2097 – 1.2156

GBP/USD: 1.3657 – 1.3750

USD/JPY: 104.47 – 104.94

USD/CAD: 1.2740 – 1.2873

NZD/USD: 0.7152 – 0.7225

AUD/JPY: 79.81 – 80.64

AUD/NZD: 1.0634 – 1.0684 (one month low)

AUD Thoughts

Markets remaining volatile into the end of last week with another busy week ahead on the data front with January PMI’s and Eurozone’s GDP for 4Q20. The US will also publish its labour market reports whilst we have the interest rate decisions of several central banks, notably the RBA, BoE and RBI also to be released.

The AUD/USD remained under pressure into the weekend and closed the week at 0.7642. Further demand is expected ahead of 0.7580 and again at 0.7540 while offering is expected to materialise at 0.7720 with more meaningful resistance resting ahead of the recent highs at 0.7820.

Event Risk Data Today

NZ: Auckland Anniversary Holiday will thin liquidity in NZ Markets.

Australia: Manufacturing PMI, CoreLogic house prices, and the M.I. inflation gauge are second-tier for markets.

US: The ISM manufacturing survey is expected to remain elevated at recent levels (60.0), which are the highest since 2018. Sentiment among producers has remained firm into the new year, as businesses try to rebuild inventories despite headwinds (delays in stimulus and vaccine distribution, further Covid restrictions).