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  • AUD/USD has failed to hold above the 0.7600 level as USD continues to crawl higher.
  • The Aussie has largely shrugged negative Australian/Chinese trade-related headlines.

The pace of the USD rally has been gaining momentum in the last few hours, with the Dollar Index (DXY) having now eclipsed the 92.80 level, and most USD majors (aside from GBP/USD) are suffering as a result. AUD/USD has seemingly now lost its grip of the 0.7600 level and has broken to the south of its recent 0.7580-0.7620ish range that had been in play since Wednesday’s Asia Pacific session. At present, the pair is trading in the 0.7570s, just above 0.7560 lows, but that only amounts to relatively modest losses of less than 0.1% on the day.

Despite a slowing of the pace of losses on Thursday, AUD is still the second worst-performing currency in the G10 on the week, having dropped more than 2.0% versus the US dollar. For reference, NZD is the worst, down closer to 3.0%, and exerting plenty of downwards pressure on the Aussie.

Driving the day

China’s state-run Global Times news outlet reported on Thursday that Chinese hay industry representatives had confirmed that some Australian hay imports had been halted and the country is now seeking alternative import sources. This news comes amid ongoing tensions between China and Australia, with the former having banned/disrupted imports of all manner of Australian agricultural exports (including barley, meat and wine), as well as coal. China is still angry about Australia’s calls for an international inquiry into the origins of the Covid-19 virus, and is likely lashing out at Australia over its alignment with other western nations such as the US, UK, EU and Canada, each of whom have recently placed sanctions on China over its human right’s abuses in Xinjiang. AUD has largely shrugged off the news of this latest escalation, however, but the news is not going to do the Aussie any favours going forward.

For the most part, AUD has been trading as a function of USD flows on Thursday and this is likely to remain the case amid a lack of key economic or political events in Australia before the weekend. USD did not see too much of a reaction to Thursday’s stronger than weekly jobless claims or Q4 2020 GDP data (the third estimate). Rather, USD appears to be garnering support amid defensive market tone; US stocks are mixed but have been trading with more of a negative than positive bias, risk-sensitive commodities are mostly lower and safe-haven US government bond prices are higher as markets fret about rising Covid-19 cases and lockdown in Europe and other key emerging economies, as well as amid rising West versus China and Russia tensions (sanctions have been being thrown all over the place this week).