June 7, 2023

AUD/USD in focus for the week ahead amidst critical US data and global COVID-19

  • AUD/USD bulls getting set for the next bullish impulse and a fresh corrective high for the coming days. 
  • Risks are aplenty for the week ahead with a focus on global COVID-19 cases and US economic data in the main. 

AUD/USD ended 2021 on the front foot, adding 0.3% on Friday, reaching as high as 0.7277. However, there are a number of risk events on the US calendar this week and plenty of jitters surrounding COVID-19 to give the bulls reason to remain cautious at the start of the New year.  

From the US, Nonfarm Payrolls will be one of the main highlights. ”The late-December COVID surge likely came too late to prevent a pickup in US payrolls after the gain in November (210k) appeared to be held down by an overly aggressive seasonal factor,” analysts at TD securities argued. 

Additionally, the Federal Open market Committee minutes of the last Federal Reserve meeting will be out this week. ”Following the FOMC’s decision to double the pace of QE tapering and the projection of a significantly more hawkish dot plot, the focus will now turn to the elements that led to the evolution of views among policymakers (including on “maximum employment”) after the November meeting,” the analysts at TD Securities explained.

Global COVID-19 risks

Meanwhile, given that there are no domestic data on the cards for the week ahead, attention may otherwise turn to the COVID-19 Omricon outbreak both ”Home & Away”. While the early reports suggest omicron is less deadly, it is also much more infectious and can still overload healthcare systems around the world. AUD is a high beta currency so it would be expected to struggle in such an environment whereby investors will shield capital away from riskier asset classes, such as global equities.

While AUD can be affected by global risks related to COVID-19, the northwestern industrial and tech hub of Xi’an in China is a cause for concern for Aussie economic growth and markets in general given the rising numbers of infections there and impacts of global growth due to renewed lockdowns. Despite an arsenal of some of the world’s toughest measures, China has started 2022 with its highest tally of local coronavirus cases for any seven-day period since subduing the country’s first epidemic nearly two years ago.

Moreover, domestically, the COVID-19 situation is no better. New coronavirus infections soared again in Australia before the New Year Eve celebrations to a record of more than 32,000, just days after surpassing 10,000 for the first time. Experts say the explosion is being driven by the highly contagious omicron variant and recent relaxation of restrictions in Sydney and other areas.

”Markets are likely to watch policy announcements closely as the record cases suggest lockdowns could return,” analysts at TD Securities said. ”The COVID situation in Australia is looking worrisome with NSW & VIC registering record new daily COVID cases. Hospitalisations have climbed, but the incidence of severe illness remained low probably due to the high vaccination coverage in Australia (91% double vaccinated).”

The February 1 Reserve Bank of Australia will be critical because ahead of the holidays, most observers were becoming more confident that the central bank would end QE altogether by then. However, if omicron disrupts the economy, then the RBA may need to hold off fully and review the situation again at the May 3 meeting. 

AUD/USD technical analysis

From a daily perspective, the price action has left the bull’s footprints in the form of a W-formation, a retest of the neckline on a 38.2% Fibonacci retracement and a subsequent extension of the bullish correction. This leaves the bias bullish for the near term. 

From an hourly perspective, however, there could be a meanwhile process of re-accumulation before the next move to the upside:

The 38.2% Fibo and the 21-EMA have a confluence in what would be expected to be a firm area of support in the 0.7260s. We may see a deeper correction prior to the next bullish impulse and before we see a higher corrective high.  

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