Forex Market: AUD/USD hits highs unseen since mid-June 2018 as broader risk sentiment remains supported

AUD/USD rose to a fresh 131-week high on Wednesday, as prospects of a vaccine-led global economic recovery kept risk-sensitive assets supported.

Yesterday the Australian dollar took a hit after China confirmed a ban on Australia’s thermal coal exports amid continuing trade frictions between the two countries.

According to Daniel Hynes, a senior commodity strategist at ANZ, China has taken nearly 30% of Australia’s thermal coal exports in 2018, however, that percentage has dropped to about 10% in October 2020.

“Australian exporters have found additional buyers in South Korea, Vietnam and Japan. As such, we see Australia’s thermal coal exports holding up relatively well, despite the Chinese ban,” Hynes noted.

Still, iron ore remains an essential export commodity for Australia, with prices near an almost eight-year high due to strong demand from China.

Meanwhile, a key event on investors’ radar today will be the outcome of the Federal Reserve’s two-day policy meeting, with expectations largely pointing to the central bank keeping the target range for the federal funds rate intact at 0%-0.25%. The Fed is also expected to indicate policy will probably remain accommodative for years to come. Analysts expect such a policy decision to further support investor risk sentiment.

As of 10:53 GMT on Wednesday AUD/USD was edging up 0.20% to trade at 0.7572, after earlier touching an intraday high of 0.7579, or a level not seen since June 14th 2018 (0.7583). The major pair has risen 3.13% so far in December, following another 4.48% surge in November, its best monthly performance since April.

In terms of US macroeconomic data, today market players will be paying attention to the November report on retail sales due out at 15:30 GMT and to the October report on business inventories due out at 17:00 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 -0.9 basis points (-0.009%) as of 9:15 GMT on Wednesday, up from -1.6 basis points on December 15th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7545
R1 – 0.7583
R2 – 0.7610
R3 – 0.7648
R4 – 0.7686

S1 – 0.7519
S2 – 0.7481
S3 – 0.7454
S4 – 0.7428