FX.co ★ AUD/USD. South African strain, rising anti-risk sentiment and Australia's inflation

The anti-risk sentiment is increasing in the currency market, which gives interest in the safe US dollar. On the other hand, the general nervousness associated with the new strain of COVID-19 has suppressed the demand for risky assets, while the US dollar slowed its decline in all major dollar pairs. During today's Asian session, the dollar index almost reached the middle of the 90th figure, reflecting the demand for protective instruments. And although we are not talking about a dollar rally now, the US currency continues to show character, not intending to give up its positions without defending itself. In the case of the AUD/USD pair, the situation is aggravated by a small drawdown in the commodity market: China's iron ore prices fell amid a decline in capacity utilization of Chinese steel mills. This fundamental background returned the Australian dollar within the level of 0.76.

Australia's trading floors are closed today as the country celebrates its Founding Day. Therefore, the current dynamics of the AUD/USD pair should also be considered through the prism of this factor. However, the Australian dollar has recently been following its American counterpart, so it will be the driving force behind the pair in the short term. Tomorrow, AUD/USD traders will focus their attention on Australia's inflation growth. In this case, the Aussie can rise, even despite the overall dominance of the US currency.

Now, let's go back to the US dollar and look at the reasons for its updated growth. First, it should be noted that this growth is initially curvy and secondly, non-impulsive. The dollar index quite follows the principle of "one step forward, two steps back". All this suggests that the US currency is still vulnerable, and the positions of dollar bulls are quite shaky. We are witnessing a typical (and yet another) growth from risks in view of the escalating situation regarding the South African strain of coronavirus.

The immediate reason for the growth of anti-risk sentiment was the publication of scientists from the National Laboratory Health Service of Johannesburg, who conducted a study of a new variant of the virus. According to the results of this study, it turned out that the strain of the virus found in South Africa is resistant to antibodies and poses a risk of re-infection. Virologists tested it on the blood plasma of patients who had suffered from COVID-19, and found that it is resistant to neutralizing antibodies formed after a previous disease. The second and extremely unpleasant conclusion is that the developed vaccines may be ineffective against this strain.

Representatives of the American pharmaceutical company Moderna also worsened the situation, saying that their vaccine causes a "weaker immune response" to the above-mentioned strain. In turn, other pharmaceutical giants (Pfizer and BioNTech) have previously stated that their drugs are effective against the British strain, but it is still unknown with the South African strain. At the same time, British Prime Minister Boris Johnson scared the markets with his rhetoric yesterday. According to him, there is a current risk of a new strain and the developed vaccines against it will be powerless.

This information flow provoked a natural reaction from the currency market participants: the safe dollar rose again, while risky assets became unwelcomed. The AUD/USD pair was no exception here, yielding to the attack of dollar bulls.

Considering the general trends, selling from current positions can be considered in the short-term period (until tomorrow), with the main target of 0.7640 (Kijun-sen line, coinciding with the lower line of the Bollinger Bands indicator on the daily chart). However, it should be noted that the Australian dollar can change the vector of its movement tomorrow. Firstly, a key release of data on the growth of Australian inflation will be published, and secondly, the results of the January Fed meeting will be announced. Both events are important for the AUD/USD pair, so it is not advisable to open large positions during this time.

According to preliminary forecasts, Australia's consumer price index in the 4th quarter of last year should grow to 0.7% (on a quarterly basis), after a recorded surge to 1.6% in the 3rd quarter. In annual terms, the indicator should remain at the level of the third quarter. If this data is released in the "green" zone, the Australian dollar will receive significant support. In this case, RBA's monetary policy is unlikely to be further ease even more to zero, especially if we consider the medium-term prospects in the next few months.

However, the results of the Fed's January meeting may not favor the US currency. In the light of the rising optimism associated with Biden's victory in the election, the currency market began to hear more rumors that the Fed will prematurely curtail stimulus programs. But Fed's head denied these rumors not so long ago, saying that it was too early to talk about it. It is likely that Powell will voice similar rhetoric tomorrow, putting pressure on the US dollar.

Thus, the dollar bulls will remain under pressure in the short term: the US dollar will show character amid a surge in anti-risk sentiment. However, tomorrow's events may significantly change the fundamental background for the AUD/USD pair, especially if the inflation data is released in the "green" zone, and the results of the January meeting are not in favor of the US dollar. In this case, long positions remain the priority in the medium and long term.

For the development of the upward trend, buyers need to break through the resistance level of 0.7730 – at this price point, the Tenkan-sen line coincides with the average line of the Bollinger Bands indicator on the daily chart. In this case, the Ichimoku indicator will form a bullish signal "parade of lines", confirming the strength of the upward movement. The main upward target is the psychologically important level of 0.7800 – upper line of the Bollinger Bands indicator on the same timeframe.