Forex Market: AUD/USD rises as US-China trade talk optimism lifts risk sentiment

AUD/USD resumed its bullish move on Tuesday, supported by news of a successful phone call between top trade negotiators from the United States and China despite frictions between the two economic superpowers on other fronts.

The US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with China’s Vice Premier Liu He, with talks considered as “constructive” by the Chinese Ministry of Commerce. At the same time, US officials said that both sides “see progress.”

“It’s reassuring that despite all the rhetoric the U.S. and China clearly still want to have an economic relationship,” National Australia Bank senior foreign exchange strategist Rodrigo Catril said.

“That adds to the feelgood vibes.”

However, gains in trade-sensitive currencies such as the Aussie remained capped as investors were not expecting a breakdown of the trade agreement.

Meanwhile, risk sentiment received an additional boost after the Financial Times reported US authorities were mulling over fast-tracking approval for a COVID-19 vaccine, which is under development by AstraZeneca and Oxford University.

As of 6:57 GMT on Tuesday AUD/USD was edging up 0.12% to trade at 0.7169, while moving within a daily range of 0.7156-0.7183. The pair managed to regain certain ground after pulling back from 0.7276, or its strongest level since February 1st 2019, registered last week. The major pair advanced 3.48% in July, which marked its fourth consecutive month of gains. It has risen another 0.40% so far in August.

On today’s economic calendar, a report by the US Census Bureau at 14:00 GMT may show new home sales rose at a monthly rate of 1.3% to 0.785 million units in July, according to market consensus. In June, sales of new single-family homes in the country went up 13.8% from a month ago to a seasonally adjusted annual rate of 0.776 million. The latter has been the highest level since July 2007.

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 10.7 basis points (0.107%) as of 6:15 GMT on Tuesday, down from 12.8 basis points on August 24th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7173
R1 – 0.7193
R2 – 0.7224
R3 – 0.7244
R4 – 0.7264

S1 – 0.7141
S2 – 0.7121
S3 – 0.7090
S4 – 0.7059