Aussie dips below 0.77 line

The Australian dollar has started the new trading week with slight losses. AUD/USD is currently trading at 0.7681, down 0.26% on the day.

US dollar on the move

The US dollar looked like the G-10 punching bag in the latter months of 2020, and the Australian dollar took full advantage by posting sharp gains. The New Year has been witness to a stronger US dollar, and this was apparent on Friday, as the US dollar pummelled the Aussie and gained 0.99% per cent. This marked AUD/USD’s strongest one-day gains since October.

The US dollar’s broad gains on Friday were even more noteworthy, given that US released soft Retail Sales reports on Friday. Headline retail sales fell by 0.7% and core retail sales was even worse, with a decline of 1.4 percent. This marked back-to-back declines for both releases. The drop in consumer spending, a key driver of economic growth, is certainly worrying. At the same time, an important takeaway from this is that the soft US numbers aren’t necessarily translating into losses for the US dollar. With a massive number of short positions on the US dollar, the currency’s rebound of late has caused a short dollar squeeze and sent the dollar upwards. This movement has continued, even with the US posting weak retail sales and jobless claim numbers last week.

Australia has done a relatively good job of containing Covid-19, although the lockdowns have taken a toll on economic activity. Consumer confidence has rebounded, and Westpac Consumer Sentiment has been in positive territory since July. The index improved to 4.1% in December, up from 2.5%, and another solid gain from the release on Tuesday could boost the Australian dollar.

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AUD/USD Technical

• AUD/USD is putting downward pressure on support at 0.7661. Below, there is support at 0.7618
• There is resistance at 0.7768, followed by resistance at 0.7832
• AUD/USD crossed below the 20-day MA on Friday and has continued to lose ground

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