Australian dollar extends slide

Aussie slides on Covid, risk aversion

It has been another rough day for the Australian dollar. AUD/USD is currently trading at 0.7164, down 0.87% on the day. The pair has plunged 2.7% this week, with the US dollar thoroughly routing its Australian counterpart. Unless the Australian dollar makes a sharp rebound, this will be one of the currency’s worst weekly performances in 2021. With the Aussie falling out of favor, the currency could fall to 0.7000 as early as next week.

The Covid outbreak is worsening in Australia, even with lockdowns in place. The state of New South Wales set a new daily record of 681 cases, and with no approved vaccine for children, health experts are worried that the delta variant could continue to spread. Add to the Covid woes the general backdrop of risk aversion across the globe, and you have a recipe for the US dollar making broad gains against most of the major currencies.

Australian employment numbers were stronger than expected, but that still wasn’t enough to stem the Aussie’s slide. Australia added 2,200 jobs in July, compared to the forecast of a loss of 42.5 thousand. The unemployment rate fell sharply to 4.6% versus 5.0% expected, down from 4.9%. The data was all the more impressive, given the scale of lockdowns across the country.

The FOMC minutes signalled that the Fed plans to scale back its monthly bond purchases, likely before the end of the year. However, the minutes indicated that any taper was not linked to a rate hike increase. Members noted that the inflation goal had been reached, making tapering possible, but that employment had not met the Fed’s benchmark of “substantial further progress”, and there would be no rate hike until this goal was achieved. The Fed has repeatedly stated that rate hikes are unlikely before tapering is completely wound up, but felt the need to emphasize this point in the minutes. Investors viewed the minutes as hawkish, allowing the US dollar to extend its gains.

AUD/USD Technical

• AUD continues to break through support levels. The next support line is at 0.7103, followed by 0.6916
• There is resistance at 0.7285, followed by resistance at 0.7385

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