25th January 2021 - AUD/USD drops back towards 21DMA just above 0.7700 handle

Good Morning,

Market Headlines

The market’s mood soured on Friday, with global indexes closing mostly in the red. Concerns gyrated around US further stimulus and COVID-19. Major pairs were unable to attract investors, ending the week within familiar levels. UK Prime Minister Boris Johnson said that early studies suggest that the new coronavirus strain developed in the country could be up to 30% more deadly than the original one. Also, the South African strain shows resistance to antibodies from the original virus, which could put at doubt vaccines’ effectiveness.

In the US, President Joe Biden’s proposed $1.9 trillion stimulus package faces opposition within his own party, as at least two Democrat lawmaker said they would oppose to another relief package. Commodities, Brent crude oil futures fell 1.3% to $55.40, copper fell 0.6%, iron ore fell 0.8% to $168.95, and gold fell 0.8%.

The upcoming week will bring the preliminary estimate of the US Q4 Gross Domestic Product, while the US Federal Reserve will have a monetary policy meeting. Both events may bring financial markets back to life.

Overnight Currency Ranges

AUD/USD: 0.7702 – 0.7745

EUR/USD: 1.2152 – 1.2190

GBP/USD: 1.3636 – 1.3704

USD/JPY: 103.58 – 103.88

USD/CAD: 1.2674 – 1.2740

NZD/USD: 0.7167 – 0.7195

AUD/JPY: 79.87 – 80.23

AUD/NZD: 1.0738 –1.0767 AUD Thoughts

AUD was up against it from the start of Friday’s Asia Pacific session. Preliminary Retail Sales numbers for December printed a larger than expected decline of 4.1% (versus consensus for a 2.5% drop in spending). Otherwise, the Aussie generally fell victim to a downbeat tone to risk appetite. With major equity bourses at (in case of the US) or close to (in the case of many European stocks) recent highs, equity traders took the opportunity to book some profits against the backdrop of an increasingly downbeat news on the global Covid-19 spread and lockdown situation.

China is struggling to quash a small outbreak, with 100 cases per day still being reported, which is concerning given how soon the Lunar New Year holiday is and the potential for that to be a super spreader event. Meanwhile, Hong Kong is in lockdown, various European nations have tightened restrictions this week and seem to be eyeing up tougher travel restrictions which could come into force in the coming weeks and the UK government is talking about lockdowns dragging on into the summer (though the Covid-19 statistics there are improving).

Recent negative vaccine headlines have not had much of an impact, likely due to the fact that volumes have thinned and most market participants have left for the weekend; AstraZeneca is to cut deliveries to the EU by 60% in Q1, providing the bloc with just 31M doses, due to production problems at its vaccine factory in Belgium. The vaccine maker was unable to indicate delivery targets to the EU for Q2 2021.

AUD remained within its recent range last week with demand still expected to be significant ahead of 0.7640 while offering interest likely rests at 0.7780 and again at 0.7840.

Event Risk Data Today

Germany: Although the IFO business climate survey has shown resilience of late, the extension of Germany’s lockdowns until mid-February poses a risk to the January update (market f/c: 91.0).

US: Ahead of the December release, the Chicago Fed activity index has been progressively declining. However, the index still remains in positive territory, signaling above-trend growth.