The driving factor for the AUD/USD strengthened this time was relief because of the breakdown of the US state budget and US-China trade negotiations. The Australian dollar strengthened around 0.3 percent against the US dollar to around 0.7081 in the mid-European session this Tuesday (12/2), although some data on the economic conditions of the Kangaroo country did not provide a bullish indication. 

The Aussie movement this time is more influenced by the relief of market players related to the breakdown of US state budget problems and US-China trade negotiations. Last night, President Donald Trump managed to get partial funding for the construction of the US-Mexico border wall he wanted.This raises expectations that he will sign the US state budget in the near future and avoid the possibility of a subsequent US Government Shutdown. The news boosted interest in higher risk assets such as the Australian Dollar, and reduced interest in safe haven assets such as the US Dollar and Yen.

Meanwhile, White House adviser Kellyanne Conway revealed to Fox News that US President Donald Trump wanted to meet with Chinese President Xi Jinping before the two countries' trade negotiations deadline on March 1. The statement dismissed the previous news which stated Trump's reluctance to meet Xi again. Adam Cole, the Forex Strategy Expert at RBC Capital Markets said that the interest in market risk increased at a glance with the AUD winning, even though domestic housing data was bleak. JPY also weakened against all G10 currencies.

Cole added that the positive risk tone mainly reflected a tentative agreement on US border security last night, including a much reduced budget for the wall (US-Mexico border), which should prevent the Government Shutdown from happening again this week. More positive voices about trade US-China also helps. On the other hand, Australian domestic economic data tends to be lackluster.

Home Loans dropped 6.1 percent (Month-over-Month) in December, while the business confidence index score (NAB Business Confidence) improved slightly from 3 to 4 in January. The final conclusion from this series of low-impact data will not encourage changes in the outlook for the Reserve Bank of Australia's policy in the near future.

After a Sharp Drop, AUD/USD Seeks to Rise

Strengthening of AUD/USD earlier in the week was triggered by investors' profit-taking after a sharp decline last week. After going through the gray week for the Australian Dollar which should be sharply weaker especially against the US Dollar, the AUD is trying to get back up to cut losses suffered throughout the past week. The economic calendar which was relatively quiet at the beginning of the week encouraged investors to take profit-taking actions from AUD short positions throughout the past week. In addition to the USD, the Australian Dollar was also observed to strengthen against the Canadian Dollar, NZ Dollar and safe haven currencies. 

Nevertheless, the Australian Dollar outlook in general is still bearish. During the past week, AUD/USD did suffer the biggest weekly decline since October 2018, due to last week's RBA policy views. More about this on Didimax’s page, with recent news and free forex learning classes that you can use to learn about forex.

The Market is Sure RBA Will Lower Interest Rates

Market participants are now increasingly confident about the prospect of cutting interest rates, after Phillip Lowe as RBA Governor last week made a dovish statement that contributed to the decline in Australian government bond yields. This makes the risk of AUD decline increasingly dominant in the eyes of market participants.Richard Grace, the Head of Currency Strategy at the Commonwealth Bank said that the big question for this week is whether AUD/USD has a strong enough depreciation strength to send it back below the psychological level of 0.7000.

Grace added that there had been a formal shift in the RBA's outlook to a neutral bias regarding the prospect of interest rates. In addition, the RBA also revised down its GDP outlook, inflation rate for this year, and underlined the increasing risk of an Australian economic slowdown. All forms of concern are triggered by weak domestic fundamental data and international impacts.