AUD : Consolidation

(Fri, 20 Nov 2020). AUD/USD trades to a fresh weekly low (0.7255) even though Australia’s Employment report showed an unexpected pickup in job growth, and swings in risk appetite may sway the exchange rate over the remainder of the month as the US Dollar continues to reflect an inverse relationship with investor confidence.

AUD/USD CONSOLIDATION TAKES SHAPE FOLLOWING TEST OF MONTHLY HIGH

AUD/USD continues to consolidate after testing the monthly (0.7340) as the Greenback appreciates on the back of waning risk appetite, and the reserve currency may continue to gain ahead of the virtual Group of 20 (G20) Summit as global cases of COVID-19 climb to 56.4 million according to the recent update provided by John Hopkins University.

The recent surge in daily COVID-19 cases are likely to dominate discussions at the G20 Summit as the increasing number of social restrictions across major cities raises the threat for protracted recovery, and the Reserve Bank of Australia (RBA) may keep the door open to further support the economy as “the Board is prepared to do more if necessary.”

However, the update to Australia’s Employment report may encourage the RBA to move to the sidelines as the economy adds 178.8K jobs in October versus forecasts for a 27.5K contraction, and Governor Philip Lowe and Co. may merely attempt to buy at its last meeting for 2020 as the central bank plans to purchase “$100 billion of government bonds of maturities of around 5 to 10 years over the next six months.”

In turn, key market themes may continue to influence AUD/USD ahead of the next RBA rate decision on December 1 as the Fed’s balance sheet approaches the record high, and the tilt in retail sentiment may persist throughout the remainder of the month as the crowding behavior from earlier this year reappears.

The decline in net-short positions could be a function of profit-taking behavior as AUD/USD consolidates after testing the monthly (0.7340), while the rise in net-long interest has helped to alleviate the tilt int retail sentiment as only 30.59% of traders were net-long the pair earlier this week.

Nevertheless, the crowding behavior looks poised to persist even though the US Dollar continues to broadly reflect an inverse relationship in investor confidence, and swings in risk appetite may continue to sway AUD/USD as the threat of a protracted recovery spurs speculation for additional monetary stimulus.

With that said, the correction from the yearly high (0.7414) appears to have been an exhaustion in the bullish trend rather than a change in behavior as it largely preserves the advance from earlier this month, but the exchange rate may continue to consolidate after testing the November high (0.7340) as it fails to extend the series of higher highs and lows from the start of the week.

DISCLAIMER ON

GFS ASIA TEAM

• 0
• 0
• just now
• 0