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Forex Market: AUD/USD eases from one-week highs as investors trim risk bets

Having touched a one-week high last Friday, AUD/USD eased on Monday, as a combination of factors, including a potentially disputed US presidential election, faint prospects of a coronavirus aid bill prior to the vote and accelerating virus spread across the globe, fueled investor risk aversion, supporting the US Dollar.

Markets remained in a risk-off mode, as the United States and France have reported a record high number of new COVID-19 infections for two straight days, a new state of emergency has been announced in Spain, while bars and restaurants in Italy have been ordered to close by 6:00 PM.

Meanwhile, US House Speaker Nancy Pelosi said over the weekend that she expected a response from the White House on Monday in regard to the fiscal stimulus plan. However, there have been few indications that an actual deal is closer.

“The combination of receding hopes for a pre-election fiscal deal and the news on COVID and potentially stricter lockdowns is enough to take a bite out of the stock market,” Ray Attrill, head of FX strategy at National Australia Bank, was quoted as saying by Reuters.

Additional pressure for the Australian currency comes from market expectations of more interest rate cuts and quantitative easing by the Reserve Bank of Australia in November.

“We still think the RBA is likely to cut interest rates at their Nov 3 meeting, from 0.25% to 0.1%,” UBS analysts wrote in an investor note.

“We also think the RBA will explicitly aim to lower yields, and flag bond buying, including yields beyond 3-years.”

As of 8:33 GMT on Monday AUD/USD was edging down 0.19% to trade at 0.7119, while easing from last Friday’s one-week high of 0.7158. The major pair has dropped 0.59% so far in October, after retreating 2.91% in September, its first monthly loss since March.

In terms of macro data, today’s focus will be on US new home sales report for September due out at 14:00 GMT.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -3.0 basis points (-0.030%) as of 6:15 GMT on Monday, down from -1.8 basis points on October 23rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7131
R1 – 0.7161
R2 – 0.7188
R3 – 0.7218
R4 – 0.7247

S1 – 0.7103
S2 – 0.7074
S3 – 0.7046
S4 – 0.7019

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