AUD/USD drops below 50DMA and 0.7600 level

• AUD/USD has dropped below its 50DMA and the psychological 0.7600 level.
• However, AUD is holding up well amid strength in stock markets, as focus shifts to Friday’s NFP numbers.

AUD/USD has been on the back foot in recent trade this Thursday, dropping below its 50-day moving average at the psychologically important 0.7600 level. More than anything else, losses are a result of continued US dollar strength and, at present, AUD/USD trades with losses of around 0.3% or a little over 20 pips on the day.

Driving the day

In terms of why the US dollar is picking up, it is difficult to pinpoint any particular drivers, but market commentators are pointing to 1) an ongoing short-squeeze, after short positioning entered the year at historic extremes, 2) the US’ comparatively fast vaccination drive (versus the EU for example), 3) positive signs coming from the US Congress with regards to the next fiscal stimulus package and, finally, 4) strong data on the week boosting hopes for a strong official jobs report for January on Friday.

Like most of the rest of its non-USD counterparts (bar GBP, which sits atop the G10 FX performance table on Thursday after a less dovish than anticipated BoE rate decision), the Aussie has succumbed to the US dollar’s advances. But AUD is performing well and is currently sat in third in the G10 rankings. Global equity markets have been firmly on the front foot for the fourth day in a row (S&P 500 is up 0.7% and the Stoxx 600 closed up 0.6%), providing some respite for the risk-sensitive Australian dollar.

Meanwhile, December Australian trade numbers were released during Thursday’s Asia Pacific session and came in showed a decent improvement; exports grew at a health MoM pace of 3% (same as in November), whilst imports saw some mean reversion from November’s massive 10% MoM growth rate to drop 2% MoM. That meant that the country’s trade surplus rose to AUD 6.785B from just above AUD 5B in November. ANZ notes that “goods that face import restrictions into China, like coal, are holding up fairly well, with evidence suggesting Australia has found alternative buyers”, a positive sign for AUD.

Coming up

Looking ahead for the Aussie dollar, Friday’s non-farm payroll numbers out of the US will be the main fundamental factor to watch. A strong number could put further wind in the US dollar sails and would be likely to send AUD/USD beyond Tuesday’s 0.7564 low. Economic events down under will also be worth keeping an eye on, however; RBA Governor Philip Lowe will be speaking before the House of Representatives Standing Committee on Economics, Canberra at 22:30GMT on Thursday and then the RBA will release its Statement on Monetary Policy (SoMP) at 00:30GMT on Friday, which follows this week’s monetary policy decision on Tuesday.