AUD/USD's relief spike to test 0.67 level

AUD/USD has rallied in Tokyo, jumping from 0.6660 to a high of 0.6701. At the time of writing, AUD/USD trades at 0.6694 having travelled from a low of 0.6648 for the day.

Liquidy is thinner in Asia, allowing for such spikes, but the feeling is that Friday could have gone a lot worse for risk sentiment enabling Aussie bulls some breathing room. 

US President Donald Trump explained that the United States will move to sanction Chinese officials over the ‘smothering’ of Hong Kong. This was made in an address after the close on Wall Street where anticipation was high. Markets were braced for a mix of economic and political policies toward China.

However, there was no mention of the trade deal between the two countries which was a major relief. The uncertainty from here does not only depend on how the US shapes its policies towards it after the removal of the special status but also on Mainland China's possible retaliation.

Meanwhile, this could be the last dance before the Reserve Bank of Australia from the bulls, but European and US markets could be of the same positive mind, that we are some way away from any political decisions that would harm US position on the economic stage.

The US already has enough on its plate with respect to COVID-19 and the riots. An escalation of the trade war is the last thing the US economy needs. For now, it is more of a war of words and markets are preferring to buy into the V– shape theory recovery in a post-COVID-19 world. 

Looking ahead

For the next catalysts, we will have When is China's Caixin Manufacturing PMI and how could it affect the AUD/USD? and RBA Preview: Not enough to kick-start anything in AUD/USD at make-or-break levels

AUD/USD levels

• Chart of the Day: AUD/USD is at make-or-break resistance, 0.6400 or 0.6820