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AUD/USD drops from weekly highs around 0.6780s, on mixed mood

  • The Australian Dollar is on the defensive due to mixed sentiment.
  • Federal Reserve: US growth risks are skewed to the downside, capping the US Dollar gains.
  • Next week: RBA and Fed officials’ speeches will give direction to the AUD/USD.

The Australian Dollar (AUD) losses ground vs. the US Dollar (USD) amid a mixed sentiment, with US equities wavering due to Federal Reserve (Fed) officials moderating the increase of borrowing costs,. At the same time, China’s Covid-19 cases breaking the 30K threshold keep investors on their toes. Also, after observing the Thanksgiving holiday in the United States (US), thin liquidity conditions exaggerate market movements. Therefore, the AUD/USD is trading at 0.6743, below its opening price by 0.28%.

Mixed sentiment keeps the AUD on the defensive

European and US equities are fluctuating. The lack of a fundamentals catalyst around the AUD/USD pair keeps traders digesting the Federal Reserve’s last meeting minutes. Policymakers judging that “slowing in the pace of increase would likely soon be appropriate” sparked a rally in risk-perceived assets that lasted until the day before US Thanksgiving. The US Dollar is staging a recovery against most G8 currencies, as shown by the US Dollar Index (DXY) gaining 0.57% at 106.238.

Delving into the minutes, Fed officials commented that growth risks in the United States are skewed to the downside. Therefore, Thursday’s US S&P Global PMIs for October flashed signs that the US economy is slowing down as the indices tapped into contractionary territory, a tailwind for the Australian Dollar, with the AUD/USD reaching a weekly high of 0.6780.

Nevertheless, the sentiment is fragile, as China’s Covid-19 cases broke the 30,000 threshold. According to Bloomberg, “Almost every district is seeing targeted lockdowns,” and residents have been asked not to leave Beijing unless necessary. That said, traders moved into safety, with flows exiting high-beta currencies like the AUD, flowing towards the safe-haven status of the greenback.

What to watch

Ahead in the economic calendar, Australia’s docket for the next week will feature speeches by the Reserve Bank of Australia (RBA) Governor Philip Lowe and Governor Kearns. Data-wise, Building Permits,  Manufacturing PMIs, and Retail Sales would shed direction on the Australian economy.

On the US front, the US front, Fed speaking would dominate the headlines. On the side of the economic indicator, the Federal Reserve’s favorite gauge of inflation, the PCE, PMIs, and labor market data, would entertain AUD/USD traders.

AUD/USD Key Technical Levels

 

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