AUD/USD gaps down to refresh multi-year low near 0.6660, eyes on China CPI

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  • AUD/USD remains under pressure near the lowest since March 2009.
  • Coronavirus-backed risk aversion, broad US dollar strength play a major role.
  • China inflation data to provide immediate direction, qualitative catalysts to remain as the key catalysts.

AUD/USD begins the trading week with a gap down opening to 0.6661, currently near 0.6665, while testing the fresh low since March 2009. The pair dropped to the multi-year low on Friday as fears of the human impact of the coronavirus as well as to the global economy grabbed major attention. Also weighing the Aussie pair was broad USD strength amid upbeat US employment report and rising safe-haven demand. While coronavirus updates should be watched closely for further direction, China’s headlines inflation data for January will be the key.

Coronavirus keeps the driver’s seat…

With the official death toll from Coronavirus crossing the SARS number of 774, to 811 by February 08, China’s efforts to placate global trades fail to gain any positive response. The number of people infected from the deadly virus inside Beijing’s borders reached 37,198 by the end of Saturday, as per China’s Health Commission. With this, the World Health Organization (WHO) said during the weekend that it is sending an advance team to China to investigate coronavirus.

On the economic side, the number of companies voiced negative impacts on supply and demand forces as the Chinese epidemic stops their value chains. Also fueling the risk-off could be the US Federal Reserve’s semi-annual report to congress that said, “the outbreak posed a “new risk”, and that significant distress in China could lead to disruption in global markets through retrenchment of risk.”

With this, the US 10-year treasury yields dropped six basis points (bps) to 1.58% whereas bund yields also declined 1.5 bps to -38.7 (bps).

The King Dollar dominates…

The US dollar remains as the true beneficiary of the risk-off as it rallied to the 17-week top on Friday. Upbeat fundamentals at home, like strong NFP number, also favored the greenback. However, the sharp revision to payrolls between 2018 and 2019 checked the USD bulls with limited power. Earlier during the week activity numbers from the US pleased the greenback buyers while China’s readiness to respect the phase-one deal terms added strength to the momentum.

Read: Big Week Ahead: Powell, RBNZ, GDP, CPIs & coronavirus drivers

Moving on…

China’s January month Consumer Price Index (CPI) and Producer Price Index (PPI) will be the keys to watch. While the Lunar New Year holidays will have their impacts on the headline data, traders will look for clues as to how the price pressure has been affected, though partially, by the coronavirus contagion. Market consensus show CPI to rise to 0.8% from 0.0% MoM and 4.9% from 4.5% YoY whereas PPI could increase to 0.1% from -0.5% prior. While an increase in Chinese inflation could offer short-term pullback to the pair, broad fears will not be defied even if the data arrive as positive.

Technical Analysis

A sustained treading below 0.6670 will gradually drag AUD/USD prices towards 0.6600 round-figure.

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