AUD/USD rides a wave of optimism in markets, holding above the 0.65 level

• AUD/USD sent onto the 0.65 handle as risk-on kicks of the European and US markets. 
• Signs of a vaccine in development is giving markets a boost.
• Tradewars are boiling on the back burners, a likely weight on AUD going forward. 

At the time of writing, AUD/USD is trading at 0.6517 having moved higher from a low of 0.6410 to a high of 0.6518. AUD ended the week on a soft note, as growth concerns weighed. However, we are seeing risk-on, stocks markets rallying and a higher AUD. There are some promising developments in various areas of current themes, for now, but we should continue to expect choppy trading for the AUD, albeit with elevated tail-risks stemming from rising geopolitical tensions.

The US dollar has been on the backfoot at the start of this week and has given way to G10 recoveries elsewhere, fuelling a bid in an otherwise downtrodden AUD. The US dollar's perceived safe-haven demand of late has hit a roadblock as markets get behind a wave of optimism surrounding not only the reopening of economies around the world but on a promising development in the race for a vaccine for COVID-19.

Signs of a vaccine breakthrough

Meanwhile, one of the leading biotech companies in the race for developing a coronavirus vaccine has announced initial results from first human tests were possible. 

The first coronavirus vaccine to be tested in people appears to be safe and able to stimulate an immune response against the virus, its manufacturer, Moderna, announced on Monday,

– The New York Times reported in recent trade. 

A phase 2 study has been granted expected to enrol an additional 600 volunteers — half older than 55 — to provide additional immunogenicity data. There are hops that in July the company will begin a Phase 3 study, aimed at showing that the vaccine can actually prevent disease. 

Trade wars to weigh

Meanwhile, as analysts at TD Securities note, AUD/USD: Tough time for the Aussie – TDS, not only are there technical arguments for the downside, the fundamentals do not stack up for it long term. While signs of a vaccine and glimmers of hope in an economic pick up can support sentiment in the near term, the US President remains mused about eliminating the largest trading partnership in the world. China and the yuan are going to be key drivers for the Aussie. While a weak yuan will be good for the Chinese economy in the near term.

However, the tensions between the US and China which have revived since US President Donald Trump blamed China for its handling of the coronavirus pandemic and US lawmakers are crafting proposals to push American companies to move operations or key suppliers out of China. If the United States indeed implements further administrative restrictions, then the yuan will likely test the lows hit last September which will be a drag on AUD.

AUD/USD levels

• AUD/USD Price Analysis: Aussie starts the week with a run to 2-day highs