Forex Market: AUD/USD plunges to a fresh 34-week low as Delta variant hampers risk sentiment

AUD/USD, a liquid proxy for risk, traded near a fresh 34-week low on Tuesday, as rising concerns about the impact of the Delta variant on global economic recovery triggered a rush to safety, supporting the US Dollar and the Japanese Yen.

“Learning to live with COVID is not being enthusiastically embraced amid the spread of the Delta variant,” Australia and New Zealand Banking Group strategists wrote in an investor note.

Since major macro data releases are absent this week, they expect both the Aussie and the kiwi dollars to be driven mostly by risk appetite.

Meanwhile, the Minutes from the Reserve Bank of Australia’s July policy meeting, released earlier on Tuesday, showed that Australia’s economic recovery had been stronger than earlier anticipated and that it was expected to continue.

“The effect of the recent virus outbreaks and the lockdowns had created additional uncertainty, but the experience to date had been that the economy bounced back quickly once outbreaks were contained and restrictions eased,” the Minutes stated.

The RBA reiterated that an interest rate hike would not occur until at least 2024.

The yield on the 10-year Australian government bonds went down 6 basis points to 1.172%, a level last seen in February.

As of 8:33 GMT on Tuesday AUD/USD was edging down 0.23% to trade at 0.7325, after earlier touching an intraday low at 0.7311. The latter has been the Forex pair’s weakest level since November 24th 2020 (0.7283). The major currency pair has retreated 2.30% so far in July, following another 2.99% drop in June.

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 -16.97 basis points (-0.1697%) as of 8:15 GMT on Tuesday, up from -18.7 basis points on July 19th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7355
R1 – 0.7389
R2 – 0.7436
R3 – 0.7470
R4 – 0.7504

S1 – 0.7308
S2 – 0.7275
S3 – 0.7228
S4 – 0.7181