AUD / USD declines and returns below 0.7800 as USD registers a modest recovery

• AUD / USD is moving away from the highs but still trading decent gains on the day as markets continue to bet on higher inflation going forward.
• Democrats appear to have gained control of Congress, which means more fiscal stimulus is likely to come.
• The AUD tied to commodities will benefit from higher inflation.

He AUD/USD It rose above the 0.7800 level at the beginning of the European morning session on Wednesday, reaching multi-year highs at 0.7820 around 10:00 GMT, but has since traded back around 0.7770 amid a slight recovery in the American dollar. The dollar index (DXY) rallied back to 89.70 after hitting multi-year lows at 89.20 in early European trading.

However, the pair is still trading modest gains around 0.1% or just over 10 pips on the day, and is one of the top performing USD pairs on the day alongside the NZD / USD, which rose more than 0.4%. Commodity export-exposed currencies AUD and NZD appear to continue to benefit from hopes of reflation that have been driving commodity prices across the board lately.

The US dollar ignored a softer-than-expected ADP national employment figure, though it doesn’t bode well for Friday’s official employment report. ADP estimated that 123,000 Americans lost their jobs in December 2020 against expectations of an estimated gain of 88,000.

Markets are more forward-looking than usual right now, however, after victory in Georgia’s two Senate elections handed Democrats control of Congress. That means more fiscal stimulus going forward, so markets are likely to scrutinize any economic weakness from the fourth quarter of 2020 / start of the first quarter of 2021 in anticipation of stronger growth later in the year.

Technical levels