AUD/USD bears stepping-in as markets fear a spike in COVID-19 cases

• Markets keeping a close eye on nations returning to work and the rise of COVID-19 cases.
• AUD/USD will trade as a proxy to how fast and cleanly the global economy can relax social distancing measures.

AUD/USD is currently trading at 0.6477 and a touch softer on the day, -0.80%, having lost ground from a high of 0.6561 to a low of 0.6456 the low. The US dollar is king at the start of the week as markets fear a second wave of COVID-19 spikes as nations seek to get back to work.

The gamble between health and the economy is a bet that the government have had no choice but to take. Sadly, we are already starting to see a glimpse of what could be an inevitable outcome. The Chinese city of Wuhan has published rise in COVID-19 cases for the first time since coming out of lockdown a month ago. Germany has also confirmed infections rising at the fastest pace since easing its restrictions.

The Aussie dollar will depend on the performance of supply chains, global equities and commodity prices. It is going to be important that the easing of restricting measures has the intended outcome - anything other than that could be game over for the renewed optimism in financial and commodity markets.  

At the same time, trade wars between the US and China are back on the table. "US and China continue to trade jabs at each other", analysts at TD Securities explained:

Risk seems to not mind this as Lighthizer and He have agreed to talk. This follows China trade data which showed further slowing in US imports. Tension between the two nations is unlikely to dissipate anytime soon for several reasons. We would caution chasing risk on trade talks.

Global sentiment will continue to prevail

Meanwhile, April’s jobs numbers are likely to be a very grim outcome. However, until markets really tune in to how much damage the lockdowns will prove to be, bad data is a given. With a serious erosion of production capacity due to the lockdowns coupled with the flooding of money on systems that are too slack, it is a very toxic cocktail for currencies such as the Aussie. But markets are not trading on that facet of COVID-19, not yet at least, preferring to back a positive outcome of nations trying to get back to work. Global sentiment will continue to prevail as the key driver, and for now, risk on has been dominating. 

AUD/USD levels

As for technicals, analysts at Commerzbank explained that AUD/USD’s near term bounce has neutralised the outlook:

 The market needs to regain the April peak at 0.6570 in order to reassert upside pressure. Above 0.6570 we look for a test of the 0.6673/84 March high and 200-day moving average where we would expect it to struggle.

Above here would target 0.6910, the 2013-2020 resistance line. Below the recent lows at 0.6380/74 we have minor support along the 55day moving average at 0.6311 and also at the 0.6265/55 16th and 21st April lows.