The Australian dollar is the best performing major currency today
The aussie also got a helping hand from the solid labour market report earlier in the day here. But the larger macro theme at play is what is helping to boost general sentiment in the aussie and that is more conciliatory tones between US and China overnight when it comes to trade.
In the grand scheme of things, the possibility of a new round of trade talks producing any significant breakthrough is slim. But over the last two weeks the market has been positioned in such a way that it is anticipating an imminent tariffs announcement to come by the US. So, this is very much a relief for risk assets; including the aussie.
Price in AUD/USD has now climbed back above the two key hourly moving averages and earlier tested the 0.7200 handle but has backed off a little. With the near-term bias now favouring buyers, the key level to break above now will be that 0.7200 figure level. If the pair can hold a daily close above that, it is a good platform for buyers to build on for further upside in the days ahead.
Domestically, nothing has changed in the aussie but with so much of the negativity already priced in, a prolonged shift in risk sentiment could just be the catalyst for a decent retracement in the currency.
Of note, short positioning in the aussie is relatively stretched and that warrants some caution for sellers at these levels as any squeeze higher will be relatively sharp and fast - as what we have seen yesterday. That also makes me believe that there's some room for the aussie to move higher still.
I'm still an advocate for selling aussie rallies as the fundamentals continue to work against the currency but this is a time to pick your entries carefully and not just jump into any given move higher. As risk starts taking a turn for the better, the focus of markets will be key in determining when the negative tones in the aussie will start to weigh again.
