AUD / USD continues to trade strongly at 0.7150, after testing the 0.7100 level early in the session
- AUD / USD is consolidating at 0.7150, having almost reached the 0.7100 level earlier in the session.
- The pair is on track for heavy daily losses amid heightened fears for the new variant of COVID-19.
- A breakout of 0.7100 could cause the pair to drop quickly to 0.7000.
The AUD/USD It fell below key support in the form of the late-September low of 0.7170 on Friday and eventually fell as low as 0.71125 as risk assets were hit amid a surge in pandemic-related fears. Since then, the pair has rallied to around 0.7140 but is still trading at about 0.7% or 50 pips losses on the day and is on track to end the week down 1.2%.
For now, buying on the dips and taking profit on previous short positions has kept AUD / USD above support at the 0.7100 area. If this support breaks, a run to the next key support area around 0.7000 is likely.
About the new variant
The latest data from South Africa on a recently discovered new variant of Covid-19 has caused great concern to global health authorities and the scientific community. There is a possibility that 1) the variant is more virulent than the delta variant and 2) the variant is resistant to the vaccine. According to scientists who have sequenced the variant’s genome, it has a large number of mutations in the spike protein (the part that mRNA vaccines are designed for). According to some members of the scientific community, it is the “most evolved” variant of the original virus so far discovered.
Risk, lower Aussie
Therefore, a major theme in the news on Friday has been that various countries around the world are reimposing travel restrictions on South Africa and other nations known to host the new variant. Market participants have been shedding risky assets out of fear that not only travel restrictions will hurt the global economic recovery, but also that countries will be forced to take more lockdowns again if the new variant is so dangerous. as feared.
Therefore, the Australian dollar is not a good asset to hold under these conditions, given its strong historical correlation with risk appetite and the exposure of the Australian economy to global economic conditions. Additionally, industrial metals took a beating on Friday amid fears of a global economic slowdown, with the Bloomberg Industrial Metals subindex (BCOMIN) down 3.8%. The export of industrial metals and their ingredients such as copper and iron ore are key to the Australian economy.