Forex Market: AUD/USD rebounds from two-week lows as risk sentiment improves, Yellen’s testimony on stimulus eyed

Having touched a two-week low on Monday, AUD/USD firmed on Tuesday, as investor risk sentiment improved on renewed optimism that China will continue to drive growth in the Asia Pacific area.

The latest macro data showed that Chinese economic growth had accelerated during the fourth quarter, while the nation’s economy had been among the few to register growth in 2020.

The Australian dollar, a liquid proxy for risk, has also been tracking commodity prices, analysts noted.

“Clearer signs that the A$ is topping can be seen in recent price action with the likes of copper and zinc under more pressure too as the last of the “Biden good news” appears to be priced in for now,” Westpac Banking Corp analysts wrote in an investor note.

They also noted that since markets expect the main focus during President-elect Joe Biden’s first 100 days to be on COVID-19 vaccine roll-out and fiscal stimulus provision, the US Dollar could weaken during the upcoming days.

US Treasury Secretary nominee Janet Yellen is expected to talk up the need for major stimulus during her testimony before the Senate Finance Committee later on Tuesday, while the new administration is expected to reiterate its commitment to a market-determined exchange rate. Such developments are “in line with our weak USD outlook”, ING analysts wrote in a note.

As of 10:52 GMT on Tuesday AUD/USD was edging up 0.39% to trade at 0.7707, while moving within a daily range of 0.7670-0.7725. Yesterday it slipped as low as 0.7659, or its weakest level since January 4th (0.7642). The major pair has inched up 0.06% so far in January, following another 4.89% surge in December, or the biggest monthly gain since April 2020.

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 -3.1 basis points (-0.031%) as of 9:15 GMT on Tuesday, up from -3.9 basis points on January 18th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7682
R1 – 0.7706
R2 – 0.7734
R3 – 0.7757
R4 – 0.7781

S1 – 0.7654
S2 – 0.7630
S3 – 0.7602
S4 – 0.7574