China Aids the Aussie

The AUD/USD currency pair has been able to regain some of its initial losses incurred. It was seen trading close to the high end of its range on a daily basis, just under the mid-0.7000 levels in the course of the early session in Europe.

The was consequently able to draw some level of purchases for the dip close to 0.7000 psychological benchmarks early on Friday. And it has currently moved so much into the touching distance of a high point of two weeks where it was on Thursday. There was a slight recovery of the global risk sentiment after China’s central bank reduced its 5-year loan rate by basis points in order to counterbalance the slow pace of the economy.

AUD/USD price chart. Source TradingView

Consequently, the US Dollar was not able to consolidate on its average intraday gains as a safe-haven asset. It, therefore, gave some support to the Australian Dollar that stands as a proxy to China.

More Interest Rates Likely in June

The Australian Dollar further gained more support from the hawkish nod of the Reserve Bank of Australia. There are indications from the bank that there would be more increase in interest rate by the month of June as risk inflation keeps rising. The expectations of the market that it was going to happen got confirmed by the country’s employment report that was published on Thursday.

Australia’s employment report revealed that the rate of joblessness dropped to its lowest point in nearly fifty years. Having said that, the unfavorable economic perspective is likely to put a lid on further moves of optimism in the market as well as the AUD/USD currency pair which is sensitive to growth.

The market is concerned that the aggressive monetary policies major central banks are planning to implement as a means of fighting inflation might pose huge challenges to the growth of the global economy. Aside from that, the continuous war in Ukraine as well as the prolonged lockdown due to COVID in China, have also heightened the fear of global recession.

It might then be prudent for traders to wait for firm follow-up purchases before they begin to position for a prolonged rebound of the AUD/USD pair from its year-to-date low level. The latest low level is in the vicinity of 0.6830 to 0.6825 which was fallen in the past week.

Since there are no major economic publications coming from the United States, the general market’s risk sentiment might keep playing a significant role to influence the US Dollar and the dynamics around it. This should give some new momentum to the AUD/USD currency pair and let traders seize any opportunity around the pair as the week closes.