AUD/USD: On slippery grounds to three-week bottom amid increasing geopolitical risk

• AUD/USD extends the previous losses as markets turn risk-averse.
• Traders ignored upbeat prints of Aussie Building Permits.
• Trade/political headlines, US data will be in focus for now.

AUD/USD drops to the three-week low of 0.6850 during early Wednesday. Calls of further rate cuts from the RBA, mainly due to Aussie wildfires, made the Australian dollar (AUD) as the weakest G10 currency the previous day. The pair dropped more than 1% to 0.6868 by the end of Tuesday. The pair’s recent declines could be attributed to Iran’s firing of missiles in Iraq that includes the US airbase.

Investors rush to risk-safety…

With confirmed reports of Iran’s firing of multiple missiles targeting the US facilities in Iraq, traders’ flight to risk-safety got an additional boost. After the attacks, the US officials have said to take all necessary measures to protect and defend whereas Iran said, as per Reuters, any aggression against Tehran will get a crashing response.

Meanwhile, the key US diplomats including Defense Secretary Mark Esper, Joint Chiefs of Staff Mark Milley and Secretary of State Mike Pompeo have recently reached White House to discuss the attack and probable reaction.

Read: Trump briefed on reports of attacks on Iraq air base - White House - Reuters

This all weighs heavily on the market’s risk-taking capacity and reverses earlier gains by the US 10-year treasury yields, down 10 basis points to 1.72% by the press time.

As a result, solid prints of Australia’s November month Building Permits that crossed a 2% forecast to 11.8% were almost ignored.

Investors will now keep eyes on the headlines as expectations rise that the US President Donald Trump will cross wires soon in a response to an Iranian attack.

On the economic calendar, US ADP Employment Change, an early signal to Friday’s Nonfarm Payrolls (NFP), will be in focus. Ahead of the release, Westpac said, “The inputs to forecasts of Friday’s official US Dec employment data continue with the ADP private payrolls survey. This sometimes impacts markets but has been very unhelpful lately – over the past 6 months it has averaged 120k, a long way short of official private payrolls growth of 174k.”

Technical Analysis

100-day SMA and an ascending trend line since early October, around 0.6830 and 0.6805 respectively, are on the sellers’ radar for now. Buyers will not risk taking positions unless a sustained break of 0.6900 mark.