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AUD/USD drops back towards 21DMA just above 0.7700 handle

  • AUD/USD trades above lows of the day set during the European morning just above 0.7700.
  • Soft retail sales and a risk-off market vibe weighed on the Aussie on Friday.

AUD/USD is consolidating just above lows of the day that were set during the European morning just to the north of the 0.7700 level. Helping the psychologically important level provide a floor to the price action on the final trading day of the week is the 21-day moving average which currently resides at 0.7702. Despite stabilising in recent trade, however, AUD/USD is still lower on the day by more than 0.6% or nearly 50 pips and, given that trade volumes are quickly dying down as the weekend approaches, stands little chance of being able to rally back towards highs of the week set on Thursday just above 0.7780.

Driving the day

AUD was up against it from the start of Friday’s Asia Pacific session. Preliminary Retail Sales numbers for December printed a larger than expected decline of 4.1% (versus consensus for a 2.5% drop in spending). However, and despite downside seen in AUD, ANZ do not see the larger than expected drop as a cause for concern; “December did carry some temporary challenges, including movement restrictions in Sydney and border restrictions across states,” notes the bank, “but the monthly result still translates to strong retail growth compared to last year (+9.4% y/y).” Moreover, “even without border restrictions and uncertainty, a positive result for December would have been very unlikely… (because) strong drivers of retail growth coincided in November, including the reopening of retail in Melbourne, Black Friday sales and key electronic product releases”. This, the ANZ concludes, “created a spike in spending unlikely to be matched the very next month”.

Otherwise, the Aussie generally fell victim to a downbeat tone to risk appetite. With major equity bourses at (in case of the US) or close to (in the case of many European stocks) recent highs, equity traders took the opportunity to book some profits against the backdrop of a increasingly downbeat news on the global Covid-19 spread and lockdown situation.

China is struggling to quash a small outbreak, with 100 cases per day still being reported, which is concerning given how soon the Lunar New Year holiday is and the potential for that to be a super spreader event. Meanwhile, Hong Kong is in lockdown, various European nations have tightened restrictions this week and seem to be eyeing up tougher travel restrictions which could come into force in the coming weeks and the UK government is talking about lockdowns dragging on into the summer (though the Covid-19 statistics there are improving).

Recent negative vaccine headlines have not had much of an impact, likely due to the fact that volumes have thinned and most market participants have left for the weekend; AstraZeneca is to cut deliveries to the EU by 60% in Q1, providing the bloc with just 31M doses, due to production problems at its vaccine factory in Belgium. The vaccine maker was unable to indicate delivery targets to the EU for Q2 2021.

 

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