AUD/USD bears catch a breath around 0.6870 after the heaviest drop since late-April
- AUD/USD seesaws near three-week low following more than 1% losses the previous day.
- Australian wildfire, broad USD strength and a break of short-term support line triggered the Aussie pair’s fall.
- US-Iran drama continues with the unconfirmed report of Baghdad attack, phase-one deal signing on the cards, eyes on Aussie housing data for now.
AUD/USD remains modestly changed to 0.6870 while moving in a range between 0.6860 and 0.6875 amid the initial Asian session on Wednesday. The pair fall 70+ pips from the open of 0.6940 during the previous day. Fears of Australian wildfire hurting the economy joined broad USD strength and dragged the quote down whereas a break of short-term key support pleased sellers afterward.
The Australia and New Zealand Banking Group (ANZ) shared reports that the Australian wildfire is the reason behind the recent downbeat Job Advertisements and Consumer Confidence data from the nation. The same also increases the odds of the Reserve Bank of Australia’s (RBA) rate cut. As per Westpac, “markets are pricing a 60% chance of easing at the Feb RBA meeting, and a terminal rate of 0.45% (RBA cash rate currently at 0.75%).”
Also contributing to the pair’s downpour was the broad US dollar strength. The greenback cheered receding odds of the US-Iran war as well as better than forecast prints of ISM Non-Manufacturing PMI, Factory Orders and Trade Balance figures.
On the trade front, the US and China are on track to sign the phase-one deal sometime during the next week despite Beijing hesitating to alter quotas for the US agricultural imports. However, doubts concerning the phase-two talks, amid the political divide between the Trump administration and China, could keep traders worried.
Elsewhere, unconfirmed reports of attacks over the US facilities in Baghdad recently crossed wires. However, the market’s risk-tone seems to have shrugged it off while waiting for the official confirmation. As per the CNN’s interview by the US Defense Secretary Mark Esper, “the US wants to see the situation with Iran de-escalated but reiterated that they are ready to finish it if Iran were to start a war, per Reuters.”
With this, the US 10-year treasury yields stay around 1.81% while S&P 500 Futures step back to 3,227, -0.13%, by the press time.
Markets are now gearing up for Australia’s November month Building Permits, expected +2% MoM versus -8.1% prior. As per TD Securities, “The pick-up in house prices should mean that the decline in monthly building approvals should be nearing a trough. Following the 8.1% m/m decline in building approvals in Oct, we pencil in a 2% rise for Nov. This would see annual building approvals improve from -24% to -16%. As usual, we expect much of the volatility in the print to arise from apartment approvals.”
Technical Analysis
Given the pair’s sustained break of an upward sloping trend line since late-November, not to forget the downside below 200-day SMA, prices will remain under pressure unless reversing back beyond the support-turned-resistance line of 0.6935. In doing so, December 18 low around 0.6838 will be on the seller’s radar.