AUD/USD Extended Gains Towards 0.6940 – Risk-On Market Sentiment in Play!
Arslan Butt • 3 min read
During Friday’s European trading session, the AUD/USD currency pair succeeded in extending the bullish moves seen during the Asian session, and took fresh bids at around the 0.6935 level, mainly due to the risk-on market sentiment, which was triggered by multiple factors that underpinned the Australian dollar, which was perceived as being riskier, thereby contributing to the currency pair gains. The broad-based U.S. dollar selling bias triggered by the declines in the U.S. bond yields turned out to be one of the major events that kept the currency pair higher. The AUD/USD is currently trading at 0.6934 and consolidating in the range between 0.6914 and 0.6941.
The global risk sentiment was supported by China’s better-than-expected Caixin Services PMI and the US NFP data on Friday, which indicated that the U.S. economy had created 4.8 million jobs in June, compared to the market expectations of 3 million. In the meantime, the unemployment rate dropped more than expected, to 11.1% from the previous 13.3%, which boosted investor confidence, as they believed that the worst of the coronavirus pandemic was over. On the other hand, the optimism about reviving hopes of a V-shaped global economic recovery and positive results from the potential COVID-19 vaccine has remained supportive of the market mood, undermining demand for the safe-haven U.S. dollar and benefitting the Australian dollar which was perceived as being riskier.
As a result, the broad-based U.S. dollar extended the losses of the Asian session on the day, perhaps due to the modest upbeat trading sentiment, backed by the positive data from both China and the U.S., which gave a boost to the market sentiment. Nevertheless, the losses in the greenback could be short-lived or temporary, as the second wave of the coronavirus is continuously picking up pace in the U.S. Although the losses in the U.S. dollar are turning out to be one of the major factors that have kept the currency pair lower, whereas the U.S. Dollar Index, which tracks the greenback against a basket of other currencies, had slipped by 0.05%, to 97.248 by 12:37 PM ET (5:37 AM GMT). As we all well aware, Australian Prime Minister Scott Morrison earlier confirmed, while speaking at an event on the day, that his country was prepared to ‘step up and support’ citizens of Hong Kong. This statement fueled the tensions between Australia and China, which have already been simmering over the last few months. As a result, China has announced the intention to impose 12% tariffs on Australian imports, which weighed on the AUD/USD currency pair.
Despite the risk-on market sentiment, the market traders seem cautious about placing any strong positions, mainly due to the growing worries about a continuous surge in the number of coronavirus cases. As per the latest report, on Thursday, the United States reported a record number of new coronavirus cases, for the 3rd day straight, with the latest figures at 52,789. In the meantime, Florida reported 10,109 new cases, while Texas recorded 7,915 new cases on the previous day. In turn, this held investors back from taking strong positions and kept a lid on any substantial gains for the major, at least for the time being.
The Australian dollar, which was perceived as being riskier, could face some selling pressure if the equity markets turn risk-averse in the wake of a rising number of coronavirus cases in the U.S. Traders will keep their eyes on Hong Kong and virus updates, and in the absence of U.S. players, due to the Independence Day long weekend, the global markets may witness a dull trading session ahead.
Daily Support and Resistance
Pivot Point 0.6926
The AUD/USD is trading at the 0.6938 level, holding within the symmetric triangle pattern. The pattern is providing resistance at the 0.6940 level, and if it rises above this, it could lead the AUD/USD process towards the next resistance level of 0.6970, while immediate support remains at 0.6890. On the lower side, the AUD/USD may find support at the 0.6835 level today. The 50 EMA and MACD both support the buying trend in the Aussie dollar today. Stay tuned to the signals page for more updates. Good luck!