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US Dollar May Reclaim Lost Ground vs AUD as Haven Demand Spikes

US Dollar May Reclaim Lost Ground vs AUD as Haven Demand Spikes

Dimitri Zabelin, Analyst

Australian Dollar, US Dollar, AUD/USD, Coronavirus – TALKING POINTS

  • US Dollar and Japanese Yen gained after stocks on Wall Street retreated
  • Coronavirus medical metrics in Florida continue to show alarming trend
  • AUD/USD rejected again at multi-month resistance – what happens now?

Stocks on Wall Street ended the day on a gruesome note with the Dow Jones, S&P 500 and Nasdaq indices closing 0.50, 0.34, and 0.73 percent, respectively. Technology-leaning stocks were hit the hardest, which helps explain why the Nasdaq index was deepest in the red relative to its benchmark peers. In the S&P 500, information technology led in losses by sector, specifically under Software & Services.

Some of the companies with the biggest losses in that subcomponent include giants like Microsoft (MSFT) and Oracle (ORCL). In foreign exchange markets, the haven-linked US Dollar clawed back some of its gains at the expense of the cycle-sensitive Australian and New Zealand Dollars. The anti-risk Japanese Yen and Swiss Franc also benefited from a risk-off environment that put a premium on liquidity over returns.

The exact source of risk aversion was unclear, but it is highly unlikely that it was one catalyst in particular. Mixed US retail sales and employment data did not appear to shift market dynamics in a significant way. Markets began to get rattled around the same time alarming medical statistics relating to Covid-19 cases and deaths were reported in Florida.

Prior to declining, EUR/USD rose following the European Central Bank (ECB) rate decision. Monetary authorities kept the bond-buying program unchanged at EUR1.35 trillion in light of “elevated” uncertainty and income losses weighing on spending. They warned that the recovery will be uneven across sectors and that risks remain tilted to the downside.

Having said that, the ECB said it is ready to adjust all of its instruments as needed and will do everything within its mandate. Officials also stressed the need for coordinating targeted and ambitious fiscal measures. ECB President Christine Lagarde says she assumes the EU recovery fund – a key meeting occurring at the end of the week – will be approved.

Friday’s Asia-Pacific Trading Session

A relative sparse data docket will likely direct traders’ attention to fundamental themes like the coronavirus. Sino-US and China-Australian geopolitical tensions have been surprisingly brushed off. If Wall Street trade is an indication of what is to come, USD and JPY may get a tailwind while AUD and NZD may continue to be on the defensive along with cycle-sensitive commodities like crude oil.

AUD/USD Analysis

AUD/USD was once again rejected at key resistance at 0.7018. This reinforced the notion that traders do not feel that an exchange rate above that range – given the current circumstances – is justified. This opens the door to another retreat if capitulation broadcasts a lack of confidence in AUD/USD’s outlook. Looking at IG Client Sentiment, a contrarian indicator, shows traders are feeling increasingly bullish towards the pair.

AUD/USD – Daily Chart

Chart showing AUD/USD

AUD/USD chart created using TradingView

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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