Forex Market: AUD/USD off one-week highs as markets balance recovery hopes with concerns over COVID-19 spread

Having advanced to a fresh one-week high in early European trade on Wednesday, AUD/USD erased those gains later in the day, returning to levels observed overnight, as markets awaited key US jobs, manufacturing data prints as well as the Minutes from Federal Reserve’s most recent policy meeting.

The Aussie drew support earlier Wednesday by an upbeat manufacturing report from China that showed activity in the sector had expanded at the fastest rate since December 2019, adding to recovery optimism.

Meanwhile, in Australia, the number of approved dwellings dropped at a monthly rate of 16.4% in May, more than expected, following a revised up 2.1% decrease in April. The number of private sector dwellings excluding houses plummeted 34.9% in May, while the number of approved dwellings in apartment buildings plunged to an 11-year low.

Activity in Australia’s manufacturing sector, on the other hand, rose at the sharpest rate since July 2019 in June, data by Markit showed earlier Wednesday, amid a further easing of lockdown restrictions that benefited producers of consumer goods in particular.

Markets continued to weigh data-driven economic recovery hopes against concerns over the accelerating spread of the novel coronavirus across the United States. 47,000 new infections were reported in the US on Tuesday, or the sharpest single-day surge since the start of the pandemic. Dr. Anthony Fauci, the head of the National Institute of Allergy and Infectious Diseases, warned yesterday the number of new COVID-19 cases could soon double.

Additionally, over 300,000 people in the suburbs north of Melbourne were placed under lockdown for a month on Wednesday, as the country’s second most populous state has been reporting double-digit rises in new infections over the past two weeks.

As of 11:55 GMT on Wednesday AUD/USD was edging down 0.24% to trade at 0.6886, after earlier touching an intraday high of 0.6921, or a level not seen since June 24th (0.6962). The major pair has gained 0.28% so far this week, following a 0.45% advance in the preceding week.

On today’s economic calendar, a report by Automatic Data Processing Inc at 12:15 GMT may show employers in the US non-farm private sector hired 3.000 million workers in June, as expected by analysts. In May, private businesses fired 2.760 million employees, as 1.967 million jobs were lost in the service-providing sector and 0.794 million jobs – in the goods-producing sector.

Meanwhile, activity in United States’ manufacturing industry probably contracted for a fourth consecutive month in June, with the respective Purchasing Managers’ Index coming in at a reading of 49.5, according to market expectations. In May, the gauge was reported at 43.1. “May appears to be a transition month, as many panelists and their suppliers returned to work late in the month. However, demand remains uncertain, likely impacting inventories, customer inventories, employment, imports and backlog of orders. Among the six biggest industry sectors, Food, Beverage & Tobacco Products remains the only industry in expansion,” Institute for Supply Management Chair Timothy Fiore said. The ISM is to release the official report at 14:00 GMT.

At 14:00 GMT Federal Reserve President for Chicago Charles Evans will moderate a virtual discussion focused on visions for how Chicago recovers from the coronavirus crisis. The event is to bring together government, community, health and business leaders.

And at 18:00 GMT the Federal Open Market Committee (FOMC) will release the minutes from its meeting on policy held on June 9th-10th. The minutes offer detailed insights on the FOMC’s monetary policy stance. High volatility of the currency pairs containing USD is usually present after the publication. On Monday Federal Reserve Chair Jerome Powell said in prepared remarks that the US economy was facing “extraordinary uncertainty”, especially amid ongoing attempts to contain the spread of the coronavirus.

AUD traders will be also expecting the May report on Australia’s trade balance due out at 1:30 GMT on Thursday. Market expectations point to a trade surplus of AUD 9.0 billion, after a surplus figure of AUD 8.8 billion was reported in April. Total exports went down at a monthly rate of 11% to AUD 37.51 billion in April, while total imports dropped 10% to AUD 28.71 billion, or to their lowest level in at least four years.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 9.9 basis points (0.099%) as of 10:15 GMT on Wednesday, up from 9.8 basis points on June 30th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6883
R1 – 0.6933
R2 – 0.6962
R3 – 0.7012
R4 – 0.7062

S1 – 0.6853
S2 – 0.6803
S3 – 0.6774
S4 – 0.6744