Risk Off Sentiment, Lower Iron Ore And Covid Concerns Weigh On AUD

AUD/USD has started the session on the front foot, reclaiming some of the drop from Tuesday. Safe havens were in demand on Tuesday, the greenback outperforming all of its G10 peers ahead of the turn of the year. The spread of the new variant of SARS-CoV-2, global tightening of lockdown restrictions and the spectre of a no-deal Brexit continued to weigh on risk.

• Iron futures were weaker following reports from China yesterday that iron ore prices are due for a correction in the coming year as Chinese demand for the steelmaking components is expected to ease. According to the report CISA held a meeting with Rio Tinto and BHP over how to control iron ore prices, while there is also talk trading positions could be reduced.
• Renewed coronavirus concern is also weighing, the NSW government will decide on Wednesday whether to increase lockdown restrictions across all of Sydney to reduce the spread.
• Weaker risk appetite and drop in iron ore combined to see AUD/USD touch lows of 0.7462, the pair has recovered and last at Asia session highs of 0.7538, 16 pips higher on the session.
• From a technical perspective, AUDUSD is off recent highs and despite Monday's volatility, maintains a bullish outlook. The pair traded to a fresh trend high of 0.7640 last week further reinforcing a bullish theme. Moving average studies are also in a bull mode and together with a positive price sequence of higher highs and higher lows, reinforce the current bullish theme. The focus is on 0.7677 next, Jun 6, 2018 high. Key support is at 0.7462, a break would alter the picture.