- The AUD / USD rally faded sharply as the US dollar rallied, catching the bulls off guard.
- The vaccine news was positive for risk sentiment, but also for the US dollar.
Rising risk appetite boosted trade-related currencies on Monday amid heightened optimism for the global economy following Joe Biden’s win and the Pfizer Inc PFE news.
There is a game changer in the news that an experimental vaccine was more than 90% effective in preventing COVID-19.
The Chinese yuan rose to its strongest level in 28 months and the Australian dollar rallied to a high of 0.7338 before falling back to 0.7266 on the strength of the US dollar.
The dollar has been swayed by the outlook, ahead of the vaccine news, that big injections of fiscal stimulus will be needed to support the US economy.
However, the vaccine could be a game changer for the US and world economy and for the dollar, avoiding the need for so much stimulus from both the Federal Reserve and the US government.
The reflation trade has hurt precious metals the most, but has done wonders for commodities in general, for which the Australian dollar operates as a proxy.
The CRB index is up 2.4% at the time of writing.
The underbelly of risk should be backing the Australian dollar, depending on how much ground the dollar needs to regain first.
DXY technical analysis
In an analysis yesterday, assuming a rally in the dollar, he predicted a continuation to the downside from a technical perspective:
Before the COVID vaccine:
After the COVID vaccine:
As you can see, the before and after charts offer a bearish outlook that rhymes with the fact that despite a vaccine, and although the news is welcome, there is a long road to economic recovery and many uncertainties.
On the other hand, the US dollar may fall with good news like the vaccine and the Biden presidency in the United States, but too much of a good thing, as seen today, can be a game changer for the dollar.
Credits: Forex Street
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