AUD/USD defends dollar-led bounce off two-week low under 0.7200, yields, coronavirus eyed

• AUD/USD holds onto Friday’s corrective pullback from 13-day low.
• Market sentiment remains weak but NFP disappointment weighed down the greenback.
• Australia starts vaccines for children between 05-12, Queensland delays school reopening.
• Aussie Building Permits for November eyed for short-term direction, US CPI and Retail Sales are the key for week.

AUD/USD begins the second trading week of 2022 without surprises, keeping Friday’s rebound from a nearly two-week bottom around 0.7180 during early Monday morning in Asia.

Mixed prints of the US employment data for December triggered the biggest daily fall of the US Dollar Index in six weeks the previous day. The greenback’s weakness favored commodities and Antipodeans. However, a second thought on the jobs report termed it mostly in line with the Fed’s expectations and kept the rate hike woes on the table, which in turn curbed the USD losses while also weighing on the equities and favoring the Treasury bond yields.

The headline Nonfarm Payrolls (NFP) disappointed markets with 199K figures for December versus 400K forecasts and 249K prior (upwardly revised from 210K). However, the Unemployment Rate dropped to 3.9% compared to 4.1% market consensus and 4.2% in November while the U6 Underemployment Rate that fell to 7.3% against November's downwardly revised 7.7%, both closing in the pre-pandemic levels. It’s worth noting that an NFP-led disappointment was largely overruled by the Unemployment Rate and U6 Underemployment Rate.

Following the data, the US dollar and the Treasury yields dropped, helping the equities and commodities. However, the day-end readings portrayed bearish bias on Wall Street and firmer US bond yields, despite the US dollar’s failure to rebound.

Elsewhere, Australia begins vaccinations for 05-12 years children from Monday after witnessing the record high infections, despite the latest figures eased. The virus pushes Queensland to delay the yearly school reopening by a month to early February. Not only at home but the virus conditions are getting worst elsewhere even as policymakers cite scientific studies to stay hopeful.

It should be observed that hopes of US stimulus were also a positive catalyst that largely got ignored.

On a different page, the US-China tussles continue, recently over trade and the human rights issues while Russia-Ukraine matter gains major attention ahead of this week’s Washington-Moscow meeting.

Amid these plays, the AUD/USD pair remains vulnerable to the further downside even as the US dollar led recent rebound of the pair. Hence, traders will look for possible bearish hints, which in turn highlight the key risk catalysts like the covid updates and geopolitical news as the economic calendar is mostly silent for Monday, except for Australia Building Permits for November, expected 0.0% versus -12.9% prior.

Technical analysis

Despite bouncing off 23.6% Fibonacci retracement of (Fibo.) October-December downside, AUD/USD remains below stays below 20-DMA level surrounding 0.7195, not to forget keeping the pullback from the 100-DMA, near 0.7290 at the latest. The inability to cross the key moving averages joins the receding bullish bias of the MACD and steady RSI to keep sellers hopeful.

That said, fresh downside will aim for the 23.6% Fibo. retest, around 0.7125, ahead of targeting a horizontal area from August 20 near 0.7110-05.