Forex Market: AUD/USD extends losses as fresh COVID lockdown concerns dampen risk sentiment

AUD/USD, a liquid proxy for risk, retreated for a second straight day on Tuesday due to subdued investor risk appetite amid concerns over renewed coronavirus-related lockdowns across parts of the country. A stronger US Dollar also weighed.

“The Aussie fell sharply overnight … after Boston Federal Reserve president Eric Rosengren raised the spectre of higher interest rates to manage the rapid gains seen in the U.S. housing market,” Steven Dooley, currency strategist at Western Union Business Solutions, was quoted as saying by Reuters.

“While Fed officials have been recently discussing tightening policy, the focus has been on controlling inflation, rather than managing asset prices. Rosengren’s comments saw the conversation open on a new front causing the U.S. dollar to climb,” he added.

In an interview with the Financial Times, Eric Rosengren said the US could not afford a “boom and bust” cycle in the housing market that would disrupt financial stability.

The US Dollar Index was 0.11% stronger on Tuesday at 91.980, while being not far from the June 18th more than two-month high of 92.405.

Meanwhile, new COVID-19 outbreaks in Australia and South East Asia have dampened risk sentiment. Concerns that the Delta variant of the coronavirus could trigger major outbreaks have led to lockdowns in three major Australian cities and some form of restrictions in several others, which affected nearly 80% of the population.

“Market sentiment is not that cheery at the start of this week with news of rising COVID cases, new lockdown measures and fresh travel restrictions pouring cold water on global markets,” Ipek Ozkardeskaya, a senior analyst at Swissquote, said.

As of 8:54 GMT on Tuesday AUD/USD was edging down 0.43% to trade at 0.7532, after earlier touching an intraday low at 0.7527. The latter has been its weakest level since June 22nd (0.7494). The major currency pair has retreated 2.57% so far in June, following a 0.26% gain in May.

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 -18.32 basis points (-0.1832%) as of 8:15 GMT on Tuesday, down from -18.1 basis points on June 28th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7574
R1 – 0.7593
R2 – 0.7621
R3 – 0.7640
R4 – 0.7659

S1 – 0.7546
S2 – 0.7527
S3 – 0.7498
S4 – 0.7470