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Jul 21 - 10:55 PM

AUD/USD - COMMENT-AUD/USD Downtrend Losing Momentum As Risk Assets Recover

By John Noonan  —  Jul 21 - 09:11 PM

The Australian dollar is in a downtrend against the greenback, but the risk of an impulsive, precipitous fall appears unlikely following a strong bounce in equities and stabilization of key commodity prices nL1N2OX25InL1N2OX0JL.

Fears of a pronounced slowdown in global growth due to the worldwide rise in COVID-19 cases have faded significantly since Monday.
The view on Wall Street is that the threat posed by the Delta variant of the virus won't materially impact growth and company profits unless it is accompanied by widespread lockdowns, which appear unlikely at presentnL1N2OX1WU.

Investors are breathing a sigh of relief now that the U.S. 10-year Treasury yield has closed back above the 200-day moving average at 1.266%, after trading as low as 1.128% at the height of the panic early Tuesday nL1N2OX1W8.

The recovery in U.S. yields indicates investors are unwinding safe-haven strategies, as reflected in AUD/JPY bouncing around 1.7% from Tuesday's low near 79.80.

While the heat has come off the AUD, it is too early to say the downtrend has ended. The Australian economy continues to be squeezed by lockdowns in major cities, which will likely solidify the Reserve Bank of Australia's dovish bias nL1N2OX2S7.

The AUD/USD will remain in a short-term downtrend while the 10 DMA at 0.7410 caps rallies.
A close above that reading would suggest a near-term bottom is in place.

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Source:
Refinitiv IFR Research/Market Commentary

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