Forex Market: AUD/USD attempts rebound from a three-week low lifted by US coronavirus aid bill hopes

Having slipped to a three-week low on Tuesday after the release of the RBA Minutes, AUD/USD was attempting a rebound on Wednesday as investor risk sentiment received a boost due to pre-election US coronavirus aid deal optimism.

Reports emerged stating that the White House and Democrats have taken a step closer to an agreement on a new fiscal stimulus package as President Trump said he was willing to accept a large aid bill, regardless of Republican opposition.

The news pushed the US Dollar down to a one-month low against major peers, while 10-year US bond yields soared to their highest level in four months.

“All eyes are on whether a U.S. stimulus bill is agreed upon,” Kim Mundy, currency analyst at the Commonwealth Bank of Australia, wrote in an investor note.

“Without a more aggressive U.S. fiscal thrust, the U.S. economic recovery is at risk and the dollar is vulnerable to a renewed bout of strength in the short-term.”

The Australian dollar has seen four straight trading days of losses recently on expectations that the Reserve Bank of Australia will further reduce borrowing costs and expand bond purchases in November.

Earlier Wednesday, a preliminary report showed retail sales in Australia had decreased at a monthly rate of 1.5% in September, while extending a 4% drop in the prior month. On the other hand, seasonally adjusted retail sales grew 6.8% year-on-year during the third quarter, preliminary data showed, following a 2.3% slump in Q2.

“The recovery path remains bumpy, but the economic recovery is well underway,” Craig James, chief economist at CommSec, was quoted as saying by Reuters.

“The Reserve Bank is keen on adding momentum to the recovery with more monetary stimulus. The aim is to get more people back into work and back quickly.”

As of 7:37 GMT on Wednesday AUD/USD was edging up 0.42% to trade at 0.7077, while rebounding from yesterday’s over three-week low of 0.7021. The major pair has dropped 1.14% so far in October, after retreating 2.91% in September, its first monthly loss since March.

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 -2.4 basis points (-0.024%) as of 6:15 GMT on Wednesday, down from -1.1 basis points on October 20th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7047
R1 – 0.7073
R2 – 0.7099
R3 – 0.7125
R4 – 0.7151

S1 – 0.7021
S2 – 0.6995
S3 – 0.6969
S4 – 0.6944