AUD/USD supported by RBA, bullish plateau in commodities and coronavirus risk dissipation

Consolidating below the hourly trend-line resistance, AUD/USD  is currently trading at 0.6719 between a range of 0.6712 and 0.6733 in holiday thin markets and subdued price action. The markets are full of idiosyncrasy, relating to the coronavirus and complacency in the stock markets, distorting the regular flow of safe-haven money and speculative positioning in FX.

Money flows supporting both the Aussie and US dollar

The US dollar is one of the more unsurprising strengths, with USD net longs pushing higher for a third consecutive week due to its practical store of value for many investors. Despite the few disappointments in Friday's data, US growth data are still better than that of many other G10 countries. 

The Australian dollar, however, remains constructive for a possible inverted head and shoulders on the daily time frame as long positions continue to grow as a consequence to the lastest hints of optimism at the Reserve Bank of Australia. AUD net positions advanced by 5.5% of open interest, reducing the net-short exposure to -18%. 

Sentiment appears to be more positive in the bulk commodity sector, with iron ore recording its largest weekly gain since September –  a proxy for AUD. The markets assume the worst of the coronavirus impact on the global economy is behind them which is reflected through the CRB Index's steady gains, along with a bullish plateau in copper and oil prices with the energy sector leading the way. 

• WHO's Tedros: Too early to see if trend of fewer new cases of coronavirus will continue

However, the momentum in the buying of AUD in spot FX has slowed, and given how exposed the Australian economy is to Chinese demand and not forgetting the bushfire emergency, fundamentally the case can still be argued for a downside extension.  It is still too early to completely move on from the threats of the virus and its economic impact –  it’s too difficult to judge how the economic effects of it will play out over the next ten days, let alone for the rest of the year and into 2021. The RBA's minutes this week could give clues as to what would force the RBA to reconsider its neutral stance.

Aussie Unemployment Rate in focus

Meanwhile, a period of consolidation could be expected – while the virus headlines and global factors remain key, the risks seem balanced in the near-term ahead of the Australian employment data which will also be scrutinised to see if it validates the more upbeat tone from the RBA. Governor Philip Lowe recently highlighted the risks to cutting do not outweigh the benefits and that the unemployment rate would need to deteriorate 'materially' for the Bank to consider cutting.

"Assuming the unemployment rate rises 0.1% per month, the earliest the RBA would cut is in June assuming a 5.5% print in May is considered a material deterioration," analysts at TD Securities explained. 

"We have headline at +12k, u/e rate at 5.2% and part rate unchanged at 66%. There is likely to be greater uncertainty for the Jan print. If the print is soft, finger will to bushfires. This should show up in total hours worked."

AUD/USD levels

Chart Of The Week: AUD/USD bulls advancing in bullish descending triangle within weekly support