Australian Dollar hovers just above 0.7000 with no news from the Trump-Xi summit 

The Australian Dollar (AUD) ticks up against the US Dollar (USD) on Friday but remains on track to a 1.3% weekly decline, to complete a three-week losing streak. The AUD/USD pair trades at its lowest levels in nearly two months around 0.7030 after testing the 0.7000 psychological level earlier on the day.

The Federal Reserve’s hawkish repricing and the soaring US yields have boosted the US Dollar across the board this week, while the meeting between the US President Donald Trump and his Chinese counterpart Xi Jinping failed to deliver any relevant agreement.

The leaders of the world’s major economies praised each other, reiterated their need for a “win-win” cooperation, dined together on Thursday and will share a cup of tea on Friday, but so far without any relevant breakthrough. Hot topics like Taiwan and the conflict in the Middle East remain in the drawer, which highlights the deep mistrust between the world’s main powers.

Fed’s hawkishness and higher US yields support the USD

In the US, strong business activity data, seen earlier in the week, coupled with rising wages and higher energy prices, has endorsed the view that the US Federal Reserve (Fed) will have to hike interest rates further in the coming months to keep the economy from overheating.

This thesis has been supported by a string of Fed policymakers this week. The Philadelphia Fed President, Anna Paulson, said earlier on Friday that the bank might have to post “modest” rate increases to bring inflation to target, while the New York Fed President, John Williams, affirmed that “it is sensible to expect another rate increase by year-end.”

Strategists at OCBC note that “resilient US economic data, elevated energy prices and persistent inflation concerns continue to drive Treasury yields higher,” a backdrop that is “underpinning the USD while weighing on rate-sensitive and carry-oriented assets.” Against this background, they caution that “a stronger-than-expected employment report could reinforce market expectations for further Fed tightening, keeping US yields elevated and providing additional support for the USD.”