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Once again, the USD basket is under real pressure as the EUR takes off again.

The USD hasn’t been this low since April 2018 and there appears to be no let up on the selling.

Risk continues to look through the clouds that are COVID-19 but it’s more than just ‘risk on’ positioning. It’s being backed by better than expected economic data, both retrospective and forward looking.

This has been the key drive for the risk-exposure G10 currencies particularly the EUR, GBP, AUD and NZD. (However, the NZD has just been hit by suggestions that the RBNZ is considering negative rates in late 2020 to early 2021.)

Let’s look more granularly at the pairs moving DXY. EUR/USD remains the biggest mover in both directions and thus is risky from a trade perspective, while GBP/USD has ‘country risk’ as the UK battles its own COVID related issues and grapples with how it is to get its Brexit negotiations back on track.

Thus, for the short term we need to continue to look at AUD/USD as inputs are more ‘stable’ and we do say that very carefully as stability is not something one would describe the COVID world.

However, ‘disruptors’ such as central bank interventions are off the table from the AUD side after Governor Lowe stated last week that he saw the AUD’s appreciation as ‘justified’ and that even if he ‘want too, [he] wouldn’t intervene to move it lower’.

Thus, what is influencing the AUD directly, on a fundamental basis, is its traditional inputs of commodities.

Iron ore hit a new 6 year high this week at US$127 a tonne. As seen in this chart:

Copper and coal pricing continue to rise on demand from China which is currently stimulating itself out of its own COVID.

This has led to a very interesting pattern forming on a technical basis in the AUD/USD.

The daily chart shows that AUD/USD is forming another wedge pattern and is clearly threatening to break out to the upside.

The RSI shows it’s not overbought, although it is close too and momentum is also backing the pair with the short-term moving averages both moving in almost unbroken fashions to the upside.

With fundamentals pointing to risk and momentum backing this technically, there is every reason to see the pair higher still.