AUD/USD remains capped below 0.7600 in choppy, low volume trade

• AUD/USD has slipped a little on Monday despite positive risk appetite.
• Lower Iron Ore prices seem like the culprit, but buoyant WTI, Copper and gold prices will likely cap any AUD losses.

Since falling below the psychological 0.7600 level during early European trade, AUD/USD has struggled to stage anything resembling a meaningful recovery. Indeed, it has continued to press lower in recent trade and is now in the 0.7560s, down nearly 0.5% or over 30 pips. Markets are quiet, with UK participants on holiday and many other market participants still not back from Christmas leave just yet. News flow coming out of Australia over the weekend and so far on the day has been light, thus, the Aussie is largely confirming to risk appetite/USD dynamics.

Aussie lower despite stock market gains

AUD is trading softer on Monday despite strength in global equity markets (the S&P 500 is currently up 0.9%). Stocks are higher given a combination of factors including US President Donald Trump’s signing of the Covid-19 aid bill, the UK/EU Brexit trade agreement and the fact that mass vaccinations are now underway in the EU – normally this would lift the likes of AUD in tandem.

However, Iron Ore prices fell on Monday, which seems to have weighed on the Aussie somewhat; the most traded Dalian Iron Ore futures contract (for May 2021) dropping more than 3% from CNY 1059.50 to CNY 1025.50. A downtrend was reportedly observed in steel prices over the weekend (Iron Ore being a crucial component in steel production), while concerns that cold weather might dampen demand were also sighted as weighing. Note: Iron Ore is by far Australia’s largest export.

The prices of Australia’s next most important exports, crude oil (WTI flat), gold (XAU/USD +0.7%) and copper (+0.6%) are holding up better. Though AUD/USD has slipped beneath the 0.7600 mark, it seems that as long as broader risk appetite and the commodity prices names above continue to hold up, AUD downside should remain capped.

AUD/USD continues steady grind higher

Despite suffering a very minor setback on Monday, it appears that technically speaking at least, risks remain tilted to the upside for AUD/USD; an uptrend linking the 13, 19 and 24 November and 7 and 21 December lows still looks very much relevant and would likely come into play slightly ahead of the 0.7500 level, should the pair slip that low. In this area, bulls might be keen to buy the dip, with the lows of 15 and 22 December at 0.7507 and 0.7515 respectively adding to the support. The 21-day moving average just below 0.7500 is also worth noting. If this area of support was to go, however, a test of last Monday’s low just above 0.7460 would be likely.

AUD/USD four hour chart