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AUD/USD Rips, USD/CAD Swoons as US Dollar Eyes Senate Runoff

AUD/USD Rips, USD/CAD Swoons as US Dollar Eyes Senate Runoff

2021-01-05 22:30:00
Rich Dvorak, Analyst

US DOLLAR OUTLOOK: AUD/USD PRICE ACTION EXTENDS HIGHER, USD/CAD DECLINES WITH GEORGIA SENATE RUNOFF ELECITON IN FOCUS

  • US Dollar weakened decisively on Tuesday to trade back at mutli-year lows against key peers
  • AUD/USD price action surged while USD/CAD edged lower alongside improving risk appetite
  • Georgia senate runoff race front and center as a potential catalyst for US Dollar volatility
  • Learn more about analyzing currency volatility and implied volatility trading strategies
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The US Dollar pivoted lower on Tuesday and reversed the intraday rebound staged during the prior trading session. US Dollar weakness was witnessed across the board of major currency pairs. AUD/USD price action advanced sharply as trader risk appetite recovered and USD/CAD tumbled with the help of surging crude oil prices. Generally speaking, the Aussie-Dollar is closely linked to market sentiment while the Canadian Dollar tends to track the direction of crude oil.

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DXY - US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (15 SEP 2020 TO 05 JAN 2021)

DXY Index Price Chart US Dollar Technical Forecast

Chart by @RichDvorakFX created using TradingView

Perhaps trader speculation on Georgia senate runoff election results contributed to US Dollar more broadly. Potential for a democratic sweep might be weighing negatively on the US Dollar seeing that this would likely correspond with a material increase in the expected size of future fiscal stimulus packages. As such, selling pressure across USD price action could accelerate if democrats take control of the senate by winning two seats in the Georgia election runoff. On the other hand, the broader US Dollar might catch a relief bounce if senate republicans maintain their majority.

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USD PRICE OUTLOOK: US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges AUDUSD USDCAD

In light of this glaring uncertainty, it comes as little surprise overnight US Dollar implied volatility readings are running red-hot. Aside from the senate runoff race, politicians are expected to vote to certify state results from the presidential election and clear a final hurdle for a smooth transition of power from Trump to Biden. Markets and trader risk appetite could also gyrate with covid concerns.

If the threat of intensifying lockdowns and restrictions gains traction, it would likely cause sentiment to deteriorate broadly, which might fuel a bid beneath the safe-haven US Dollar in turn. Additionally, the release of FOMC minutes from the December Fed meeting is scheduled to cross the wires during Wednesday’s trading session as well.

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-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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