AUD/USD stretches recovery moves beyond 0.6600 despite US-China tussle

• AUD/USD extends pullback from 0.6567 to revisit above 0.6600 area.
• The US officially terms Hong Kong “not autonomous” from China, the US House passes a bill to sanction Beijing’s diplomats.
• US dollar pared earlier gains amid calls of Fed thinking yield curve control.
• Second-tier Aussie can offer intermediate moves while risk catalysts could direct the broad trading sentiment.

AUD/USD extends the late-US session recoveries while trading around 0.6620 at the start of Thursday’s Asian session. Although concerns surrounding the US and China’s rivalry over Hong Kong kept the Aussie pair pressured the previous day, hopes of a heavy stimulus from the European Union (EU) seem to have played their role. Also recently favoring the mood could be the US dollar’s declines amid the Fed policymaker’s signal for the use of Quantitative Easing (QE).

US and China keep the game on…

Be it US Secretary of State Mike Pompeo’s official announcement to take back Hong Kong’s autonomous status or China’s allegations on the US in mishandling the coronavirus (COVID-19), the US and China stay at loggerheads.

The rivalry between the global leaders is heating up to threatening sanctions on each other. Herein, the Trump administration is ahead of Xi Jinping and the company. More recently, the US House of Representatives passed a bill that will levy sanctions on Chinese officials involved in the Human Rights violations in Xinjiang.

Good news from the EU helps the market…

While the US-China tussle weighs on the market’s mood, the EU’s diplomat’s signals for a huge package and increase in budget to include the virus fund saved the day.

Additionally, hopes of the gradual reopening of the economies and nearness to finding the virus cure also provided mild support to the trading sentiment.

Amid all these catalysts, the market’s risk-tone remains sluggish with Wall Street printing gains but the US 10-year Treasury yields stepping back from 0.70%.

It should also be noted that the New York Fed President Williams dropped a hint that the Federal Reserve is thinking hard upon using the Quantitative Easing (QE) to avoid the negative interest rate. While the news should ideally help the US dollar, the greenback lost ground across the board after the release.

Looking forward, Australia’s Private Capital Expenditure for the first quarter (Q1), expected -2.6% versus -2.8% prior, will decorate the economic calendar while the US-China story could keep the traders busy. Further, Westpac says “ the RBA Governor Philip Lowe will appear before the Senate Select Committee on COVID-19 at 00:00 AM GMT on Thursday,” which in turn becomes a key event to watch.

Technical analysis

Despite failing to cross a 200-day SMA level of 0.6660 on a daily closing basis, AUD/USD stays above the immediate support of 0.6570/65, comprising April 30 top, which in turn keeps the bulls hopeful. In doing to, the quote can continue its efforts to challenge March top near 0.6686 ahead of targeting 0.6700 round-figure. Meanwhile, 100-day SMA near 0.6486 becomes the strong support after 0.6565.

Additional important levels