Australian dollar hovering at 77 line

The Australian dollar has kicked off the new trading week with slight losses. AUD/USD is currently trading at 0.7700, down 0.20% on the day.

It has been a quiet start for the Australian dollar in 2021. Like other pro-cyclical currencies, the Aussie enjoyed sharp gains against the US dollar in the latter two months of 2020. However, the US dollar has stabilized in the month of January and the pair has been noticeably quiet, content to stay close to the 77 level.

Fed, stimulus could impact on US dollar

With the US presidential inauguration behind us, the Biden stimulus plan will play an ever more significant role in what direction the US dollar takes in the near-term. If the stimulus plan runs into obstacles with the Republicans in the Senate, then we could see a resumption of the US dollar short squeeze. At the same time, President Biden does have some cards up his sleeve. He is a skilled negotiator with an impressive record of working ‘both sides of the aisle’ in Congress, and the Democrats have control over Congress, although they are working with a razor-thin “majority” in the Senate (both parties have 50 members, with the Vice-President breaking any 50-50 deadlocks).

This week’s Fed policy meeting, the first of 2021, is expected to be dovish, but to what extent? An ultra-dovish FOMC statement could sour investors and send the greenback to lower levels. It will be interesting to see how successful Fed Chair Powell and US Treasury Secretary Yellen can co-ordinate their efforts and provide a much-needed boost to the US economy. With Yellen having been at the helm of the Fed prior to Powell and both supporting a dovish monetary and fiscal stance, it could well be the start of a beautiful relationship.

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AUD/USD Technical

• There is resistance at 0.7756, followed by resistance at 0.7797.
• AUD/USD is testing support at 0.7688. Below, we have support at 0.7661
• The pair broke below the 20-day moving average (MA) in the Asian session. A close below this line (currently at 0.7702) is a technical bearish signal

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