The Australian dollar paired with the US currency updated a two-week low today, marking 0.7147. The AUD/USD pair is declining for the second consecutive day against the background of the general strengthening of the greenback and the aussie's weak positions. The aussie is under pressure from several fundamental factors at once, which, in fact, are interconnected with each other. It's Omicron's fault, which has recently been actively spreading across the green continent. Given the prevailing fundamental background, it is risky to talk about long positions now: it is advisable to use the upward pullbacks of AUD/USD as an excuse to open short positions. In the medium term, the pair will remain under pressure, especially if tomorrow's Nonfarm reports find themselves in the green zone. However, everything will be tackled in order.
The epidemiological situation is deteriorating everywhere. For example, yesterday it became known that the daily increase in those infected with coronavirus in the world for the first time during the pandemic exceeded the two million mark. Individual countries also report on the establishment of anti-records. In particular, on January 4, more than one million COVID-19 infections per day were detected for the first time in the United States. This is twice the previous daily peak set a few days ago.
This cup also did not pass Australia. Just yesterday, a multi-month anti-record was registered: more than 72,000 new cases of coronavirus were detected in the country. A day earlier, the daily increase was at the level of 64,000.
Previously, Australia successfully contained the number of COVID-19 cases due to strict quarantine restrictions. Judge for yourself: in the summer of last year, from 50 (in June) to 1400 (in August) cases of infection per day were registered. In autumn, this indicator began to gradually grow, reaching an annual peak in December (30-35,000 infected per day). In January 2022, the situation began to deteriorate more rapidly: 37,000 patients were identified on January 2, 47,000 on January 3, 64,000 on January 4, and 72,000 yesterday. Now the incidence rate is much higher than anywhere else in the Pacific region. And according to epidemiologists, the worst is just ahead.
Against the background of such trends, the local press started talking about the fact that the authorities will again have to resort to strengthening quarantine restrictions. It should be noted here that in the context of the foreign exchange market, traders are primarily concerned about the reaction of the authorities to the outbreak of morbidity. The very fact of the deterioration of the epidemiological situation is actually ignored by the market (it is enough to recall the impassive reaction of the dollar to the millionth daily increase in infected people in the United States). The Australian dollar is deprived of the opportunity to "remain calm", since the probability of another lockdown is not excluded at all.
In addition, the aussie is under pressure from another fundamental factor – this time of a political nature. Although Omicron is involved here, too. The fact is that the Australian authorities have recently recognized that all the resources for testing the population in the country have actually been exhausted. Opposition political forces have accused the government led by Prime Minister Scott Morrison of failing to predict the growth in demand for rapid tests. At the same time, the oppositionists criticized the "exculpatory arguments" of federal officials. In particular, the Australian finance minister said that Omicron caused too sharp an increase in the number of cases of coronavirus, "which mathematical models did not predict." The scandal has not subsided for several days against the background of a significant deterioration of the epidemiological situation in the country.
The US dollar, in turn, exerts quite strong pressure on the AUD/USD pair. The hawkish minutes of the last Federal Reserve meeting were published yesterday, as well as a report on the US labor market from the ADP agency. This report was in the green zone, stating the creation of 810,000 jobs in the private sector. Traders were surprised by this, because most experts predicted an increase of 405,000. That is, the actual result was twice as high as the analysts' forecast. I note that at the end of last year, this report showed a fairly high correlation with the official release, so the strong December figures from ADP suggest that tomorrow the main components of the report will please dollar bulls with a green color. Preliminary forecasts regarding December Non-farms also suggest that the US labor market will at least not disappoint. Thus, the unemployment rate should decrease to 4.1% (a systematic decline in the indicator has been observed for 15 consecutive months), and the number of people employed in the non-agricultural sector should increase by 410,000. A 370,000th increase is expected in the private sector of the economy.
Thus, the prevailing fundamental background indicates the priority of short positions on the AUD/USD pair. The risk factor is Nonfarm, so it is advisable to make trading decisions after tomorrow's release. From a technical point of view, the pair is located on the middle line of the Bollinger Bands indicator (on the daily chart), but under all the lines of the Ichimoku indicator. It is important for AUD/USD bears to gain a foothold below the average Bollinger Bands line (that is, below 0.7190) – in this case they will be able to retest the support level of 0.7145 (Kijun-sen line on D1) and in the medium term – the resistance level of 0.7100 (lower Bollinger Bands line on the same timeframe).
