The Dollar’s Push Requires Further Strength As Aussie Weakens

The AUD/USD pair hovers around 0.7030/35 in early last week trading. On Friday, the Australian pair fell to its lowest since July 20 and bounced off 0.7004 by the end of the week. While coronavirus (COVID-19) concerns and a broad rally in the US dollar can be blamed for the weakness of the quote, recent positive signals regarding the US aid package and the viral vaccine point to a light at the end of the tunnel. However, they are still in their early stages and need a backup to work.

The dollar and the yen finished last week as the strongest on the back of falling global equity markets. There were concerns about a resurgence of coronavirus infection in Europe, with concerns about a return to isolation. However, after Friday’s rebound, US markets did not finish so badly. It is still unclear if the overall risk trend has changed. We consider the dollar’s growth, although strong, so far nothing more than a correction.

On the other hand, the Australian and New Zealand dollars ended as weakest on expectations of further policy easing by the respective central banks. However, Australian sellers are not yet fully tuned in. Opinions are divided as to whether the RBA will cut interest rates in less than two weeks. The coming days will be interesting for the Australian dollar.

Dollar Index Correction May Set In
The dollar index finally broke resistance at 93.66 last week, confirming bottoming at 91.74. A further rally in the near future will remain in favor of the 95.71 cluster resistance zone and 38.25 pullbacks from 102.99 to 91.74 at 96.03. At the moment, we view the current growth as a corrective movement. Hence, strong resistance can be seen from 95.71/96.03 to limit upside potential and lead to another mid-term drop to 91.74.

Therefore, it is unlikely at this point that the dollar will see a sustained gain due to risk aversion. Given the lack of any convincing clues that could revive hopes for an economic recovery amid the virus epidemic and clashes between the US and China, the AUD/USD pair is unlikely to remain strong for a long time. However, no important data/events on the calendar can keep traders guessing if some news hints are not showing positive signs.