AUD/USD drops 40 pips as trade optimism fades, risk sentiment sours

The Aussie dollar is losing ground in Asia, currently down 40 pips from the high of 0.7091 in early Asia.
Risk sentiment has soured on reports that China China may walk back concessions.
RBA's Bullock said the central bank is encouraging lenders not to tighten too much.

Omkar Godbole FXStreet Contributor

AUD/USD is currently trading at 0.7061 (50% Fib R of 0.7003/0.7120), having hit a high of 0.7091 earlier today.

The Aussie is being offered, possibly in response to overnight reports stating that US and Chinese negotiators remain at odds on aspects of their current trade talks and that Trump administration is concerned that China is reneging on certain trade concessions.

The news seems to have soured risk sentiment: the Dow Jones Industrial Average (DJIA) fell 0.10 percent yesterday and the futures on the S&P 500 index are currently down 0.17 percent. Meanwhile, USD/CNH is mildly bid at 6.7211 at press time.

Apart from fading trading optimism, the comments by RBA's Bullock may be adding to the offered tone around the Aussie dollar. The central banker was out on the wires a few minutes ago sounding cautiously optimistic on households' ability to service the debt. Bullock, however, added that RBA is encouraging banks not to tighten too much - an indirect hint that the central bank may feel forced to cut rates if major lenders continue to hike mortgage rates.

Looking forward, the currency pair may remain on the defensive, if the risk assets continue to report losses and the US 10-year treasury yield gains altitude ahead of the Fed. As of writing, the yield is trading at 2.614 percent, having clocked a high of 2.632 percent yesterday.

Technical Levels

1. R3 0.7133
2. R2 0.7122
3. R1 0.7105
PP 0.7094
1. S1 0.7077
2. S2 0.7066
3. S3 0.7049

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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