AUD/USD: Bears eye 0.7600 as risk aversion extends into February

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AUD/USD begins February with a gap-down after taking a U-turn from highest since March 2018 peak the previous month.
Gyrations in stocks, five-day lockdown in Perth and downbeat China PMIs favor sellers.
Second-tier data from Australia, China’s Caixin Manufacturing PMI will decorate the calendar in Asia.

AUD/USD kick-starts February with a downside gap from 0.7641 to 0.7627, currently at 0.7624, as Monday’s trading begins in Asia. The risk barometer not only bears the burden of the recent trading woes, mainly emanating from equities, but coronavirus (COVID-19) headlines and soft data from China also weighed on the quote.

Perth on a five-day lockdown…

With a fresh covid case of a hotel worker renewing fears of a wider contagion, the Australian government announced a five-day activity restriction schedule in Perth. The move from Canberra recalled the bears that recently stepped back due to the increased pace of global vaccinations and reduction in infections in the UK, the US and Europe.

Elsewhere, China’s NBS Manufacturing PMI and Non-Manufacturing PMI for January came in weaker than expected. Details suggest that the headlines Manufacturing PMI eased below 51.6 forecast to 51.3 while Non-Manufacturing PMI dropped to 52.4 from 52.6 market consensus. Weakness in the official activity numbers seems to push Caixin Manufacturing PMI towards a softer reading than the 53.00 previous, expected 52.7, for January.

On a broader scale, last week’s equity traders’ frenzy seems to have alarmed market regulators and hence the risk-off is likely to extend. As per the latest report from Goldman Sachs, last week did show the largest hedge fund positioning ‘de-grossing’ since February 2009 and thus there is still ongoing risk of positioning-change-driven moves.

Against this backdrop, the Wall Street benchmark closed January on a negative note while the US 10-year Treasury yields rose 1.6 basis points (bps) to 1.071%. The same risk-off moves helped the US dollar index (DXY) to trim early Friday’s losses while closing the day with no major gains or losses.

Moving on, TD Securities Inflation for January, December’s Home Loans and ANZ Job Advertisements will be the readings to watch from Australia. Though, major attention will be given to China’s Caixin Manufacturing PMI for January. It should, however, be noted that the risk catalysts will keep the driver’s seat.