Forex Market: AUD/USD hits fresh six-week highs as EU deal on stimulus fuels global risk sentiment

AUD/USD gained for a third straight trading day and touched a fresh six-week high on Tuesday as a fiscal stimulus announcement in Europe buoyed global risk sentiment, supporting currencies such as the Aussie and the kiwi.

European Union leaders finally reached an agreement on a EUR 750 billion stimulus plan for their coronavirus-ravaged economies after a summit that lasted almost 100 hours.

“This agreement sends a concrete signal that Europe is a force for action,” European Council President Charles Michel said.

“It is about a lot more than money. It is about workers and families, their jobs, their health and their well-being. I believe this agreement will be seen as a pivotal moment in Europe’s journey, but it will also launch us into the future.”

Meanwhile, the minutes from Reserve Bank of Australia’s policy meeting in July showed earlier Tuesday that there was no need for monetary policy measure adjustment in Australia in the current environment. The document also stated that it would have been possible to set borrowing costs lower, but still positive. The central bank kept its official cash rate at a record low level of 0.25% earlier this month and said accommodative policy would remain in place for as long as necessary.

Speaking earlier on Tuesday, RBA Governor Philip Lowe ruled out a possibility of negative interest rates and said printing money to fund government stimulus was not necessary amid low yields and sound demand for government debt instruments.

Lowe also said it was difficult to argue the Australian Dollar was currently overvalued given the strength of commodity prices and demand from China, Australia’s largest trading partner.

As of 6:52 GMT on Tuesday AUD/USD was edging up 0.35% to trade at 0.7041, after earlier touching an intraday high of 0.7044, or a level not seen since June 10th (0.7064). The major pair has risen 0.67% so far this week, following four successive weeks of gains.

In terms of economic calendar, no relevant macroeconomic reports that may affect AUD/USD valuation are scheduled to be released on Tuesday.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 14.1 basis points (0.141%) as of 6:15 GMT on Tuesday, up from 13.4 basis points on July 20th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7002
R1 – 0.7032
R2 – 0.7047
R3 – 0.7076
R4 – 0.7106

S1 – 0.6987
S2 – 0.6958
S3 – 0.6942
S4 – 0.6927