AUD/USD hits resistance at 0.7820 and falls, though wheat production and retail sales are good. Strong US Dollar Index weakens the currency pair.
AUD/USD Slides from 0.7820 Levels
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After hitting the 0.7820 high on Wednesday, 6 January 2021, the AUD/USD currency pair moved lower. The AUD/USD currency pair has strong support at the 0.7640 level, below which the Australian dollar may weaken. On the upside, the 0.7820 level will be closely watched as the currency pair fell from this point.
The AUD/USD pair is marching with upward momentum, with the currency pair at a 2 ½ year high at 0.7820 levels on Wednesday.
The Australian dollar, which has strengthened against the US dollar from November, has been on the increase in December and continued into the first week of January 2020 too. However, on Monday, it slumped to 0.7680 levels. Rising coronavirus cases in China and expectations of more fiscal stimulus in the US is keeping the Australian dollar subdued.
AUD/USD rebounded from March lows at 0.5500, gaining strength every month, trending at a 2 ½ year high currently.
The AUD/USD currency pair gained support in January 2021 at the 0.7695 levels and fluctuates between the 0.7700 and 0.7750 levels, while the US dollar has strengthened to the 90.40 levels. If the currency pair moves past the 0.7750 level, a further momentum upwards can be expected.
Wheat Produce Boosts Australian Economy
The Australian dollar, a risky asset is correlated with commodity prices and has gained support with good wheat yield.
Agriculture in Australia has yielded good results, especially in wheat production. Wheat production is at surplus with more than 30 million tons produced. Good rainfall has led to surplus production.
Southeast Asian countries like Vietnam, Thailand, and Indonesia are chief importers of wheat from Australia. The bumper crop will meet the needs of these importers. With poor weather affecting other parts of the world, the surplus wheat production will be good for the farmers.
Retail Sales Improves with Increase in Consumer Confidence
Retail Sales m/m has increased from 7.0% to 7.1%, according to data released by the Australian Bureau of Statistics on Monday. Household spending has increased, with relaxation in lockdown restrictions. Black Friday sales have contributed to an increase in sales, says the ABS. Online sales have increased from 10.4% in October to 11% in November.
Covid-19 Restrictions Lifted in Victoria and Melbourne
With Covid cases decreasing in Victoria and Melbourne, lockdown relaxation has encouraged consumers to spend more as consumer confidence has improved. Isolated cases continue to haunt the people, such as the outbreak of cases in Sydney. Stores in Melbourne have been working for the entire month with restrictions removed.
The AUD/USD saw weakness with the coronavirus cases increasing in China. The Australian dollar is affected by the Chinese economic and political conditions, and the rising virus cases in China puts a brake on the Australian dollar. However, virus cases in Australia are subsiding that may stimulate the economy.
With the coronavirus cases subsiding in various parts of Australia, there is hope for a positive sign from the economy. Australia is getting ready for a massive vaccination drive to start in February. The vaccine from Pfizer will provide immunity for patients in the country.
Trade Balance Decreases in November
Trade Balance has decreased from 6.58 billion to 5.02 billion in November 2020. It has missed the market consensus of a 6 billion surplus. The covid-19 pandemic has disrupted the country’s trade surplus, and August and November have the smallest trade surplus. Exports have gone up by 3% to AUD 36.39 billion. Imports have increased by 10% for the month to AUD 31.37 billion.
Commodity Prices year-on-year have increased from 2.5% to 11.7%. It measures the change in the sale price of exported commodities. As it accounts for more than half of the export income in Australia, the Australian dollar shows signs of strength.
The Manufacturing PMI is slightly lower in December at 55.7. The Service Index has not done well moving lower from 57.4 to 57.
The Melbourne Institute’s Inflation Gauge that measures the change in the purchase of goods and services by consumers has released positive data, showing an increase from 0.3% to 0.5%, which is bullish for the Australian dollar.
Tensions between Beijing and Canberra disrupt trade relations, viewed by investors with apprehension.
US Dollar Index Strengthens Against Major Currencies
The US dollar went below 2020 lows in the first week of January 2021. Though labor market data is weak, and the fiscal stimulus is announced, the US dollar continues to gain strength. The Democrats are rolling out more fiscal stimulus after taking over the Senate, which has pushed the US dollar higher along with the Treasury yields. The greenback has strengthened to retain the 90.00 levels.
The US dollar is trading higher and has impacted the Australian dollar. Risk assets like gold have come down, while crude oil and the global stock market are moving up. The commodity-related Australian dollar is gaining strength with the rising crude prices.