AUD/USD: Risk off triggers pullback to sub-0.7700 area, covid woes in focus

• AUD/USD stays depressed after losing the 0.7700 threshold, fades bounce off 0.7642.
• Virus fears are back in motion as variants seem stronger than the original COVID-19 version.
• Japan, France, Italy and the UK take preventive measures and dampen the risks.
• No major data in Asia but virus update, Georgia election news will be the key to follow.

AUD/USD remains pressured around 0.7660 at the start of Tuesday’s Asian session. The aussie pair marked the heaviest losses in two weeks the previous day as fears emanating from the coronavirus (COVID-19) variant and electoral runoff in Georgia propelled the US dollar. Several countries recalled the activity restrictions, Britain being the latest, which in turn dampens hope of economic recovery and favor risk-off. Moving on, a light calendar in Asia directs the AUD/USD traders towards risk catalysts whereas virus updates become important.

Fearful start to 2021…

Be it worries that the covid strain, not the one spotted by the UK but from South Africa, or the US election fears, not to forget the Sino-American tussle, everything offered a dull start to 2021.

The virus variant is known to have a faster pace of infection and is resilient to vaccines, as suggested by Professor of Medicine at Oxford University John Bell. The news poured cold water on the face of vaccine hopes and pushed policymakers towards fresh lockdown measures. The UK becomes the latest one to join the list while announcing further activity restrictions starting from January 5. New York Governor Andrew Cuomo recently said, per Reuters, that a more contagious 'UK' strain of covid has been found in New York state.

With the virus woes hampering economic activities, expectations of recovery in early 2021 fade, which in turn weigh on the risk catalysts.

Also challenging the mood are cautious sentient ahead of the Georgia election which will decide the governing party in the US Senate. Furthermore, chatters that America is up for more delisting of Chinese companies from the New York Stock Exchange (NYSE), as well as rumored threats from Iran, offered extra burden on the risks.

Against these plays, upbeat PMIs lost their importance and couldn’t save Wall Street benchmarks from marking a negative closing at the year-start. Real yields on the US Treasuries also plunge to record low while the US dollar index (DXY) bounced off a multi-month low as a sign of risk aversion.

Looking forward, Australia’s ANZ Job Advertisements for December, prior 13.9%, can offer intermediate moves while occupying the calendar. However, major attention will be given to the virus updates and election news. Overall, AUD/USD is up for a pullback amid fresh fears. Though, US dollar weakness and Canberra’s comparatively stronger fundamentals test the bears.

Technical analysis

While overbought RSI suggests further weakness in AUD/USD prices, highs marked on December 17 and 28, around 0.7640, offer an immediate challenge to sellers ahead of an upward sloping trend line from November 02, at 0.7600 now. Meanwhile, fresh buying is likely delayed unless the quote rises past-0.7745.