AUD/USD clings to modest gains near mid-0.7100s

The AUD/USD pair traded with a mild positive bias through the early European session and remained well within the striking distance of multi-month tops set on Wednesday.

Following the previous day's intraday pullback, the pair managed to regain positive traction for the fifth consecutive session and was being supported by the prevalent selling bias around the US dollar. The second wave of coronavirus outbreak in the US dampened prospects for a quick turnaround for the domestic economy and kept the USD bulls on the defensive.

This coupled with the impasse over the next round of the US fiscal stimulus measures further undermined the sentiment surrounding the greenback. It is worth reporting that Republican-majority Senate has been largely ignoring a $3 trillion relief bill, which was already passed by the Democrat-majority House of Representatives two months ago.

Meanwhile, the optimism over a potential vaccine for the highly contagious COVID-19 diseases remained supportive of the upbeat market mood. This, in turn, further drove flows away from the safe-haven USD and benefitted perceived riskier currencies, including the Australian dollar. However, concerns over worsening US-China relations might keep a lid on additional gains.

Diplomatic tensions between the world's two largest economies escalated further after the US abruptly ordered China to close its consulate in Houston by Friday amid accusations of spying. China was quick to respond and threatened to retaliate with firm countermeasures, sparking fears that the latest dispute could be the one to halt the US-China trade deal.

Apart from this, slightly overbought conditions on the daily chart might also hold investors from placing any aggressive bullish bets, which might further contribute towards capping the upside for the AUD/USD pair.

Market participants now look forward to the release of the US Initial Weekly Jobless Claims. This, along with developments surrounding the US fiscal stimulus might influence the USD price dynamics and produce some short-term trading opportunities.

Technical levels to watch