- AUD/USD surges as the US dollar gives back gains on US election jitters in the Senate election run-off.
- AUD short positions increased moderately last week but remain well below their recent highs.
AUD/USD is currently trading at 0.7771 and firmly up some 1.45% on the day as the US dollar suffers the market’s volatility of early 2021 markets.
The US dollar fell against a basket of major currencies on Tuesday, in the wake of China’s decision to lift its official yuan exchange rate by its highest margin since it abandoned the dollar peg in 2005.
China’s central bank set the official yuan midpoint at 6.4760 per dollar before the market opened, up 1% from the previous fix, the biggest change higher since2005. In the offshore market, the yuan strengthened as far as 6.4119 for the first time since mid-June 2018. It started the week at 6.494.
Meanwhile, China’s Caixin manufacturing PMI came in weaker than expected, dropping to 53.0 in Dec (mkt 54.7) from, 54.9 in Nov. The PMI expanded for an 8th straight month.
The details of the report revealed a fall in output to 55.4 from 57.1 in Nov and a fall in new orders to its lowest since Aug 2020.
Overall, the data is consistent with the NBS manufacturing PMI, which also revealed a slight softening, indicating a small loss in momentum, however, AUD is benefitting most amid a recovery in China’s economy.
Meanwhile, net AUD short positions increased moderately last week but remain well below their recent highs.
Of note for the weeks ahead, China/Australian tensions could be a stumbling block for the Aussie and, moreover, the Reserve Bank of Australia’s QE policy could be tempering the attraction of the AUD.
Elsewhere, US politics, as well as the spread of the coronavirus could have the capacity to lead to some safe-haven USD buying in the coming weeks.
However, real interest rates are sure to hamstring the US dollar for the coming months at the very least.
The focus for the rest of the day will be on the Senate election run-off. As of right now, the odds on PredictIt show a virtual dead heat. Polls in Georgia will close at 7 pm ET and then the counting starts.
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