AUD/USD erases bearish opening gap, trades above 0.6750

• Trade tensions ease after China calls for ‘calm’ resolution.
• US Dollar Index rebounds to 98 following Friday’s sharp drop.
• Coming up: Chicago Fed’s National Activity Index and July Durable Goods Orders from US.

Despite the increasing volatility surrounding major currencies and sharp changes in the risk sentiment on Friday, the AUD/USD pair stayed in its weekly range as the broad USD weakness countered the selling pressure the AUD was facing as an antipodean amid a sudden escalation in trade tensions. After closing the week flat, however, the pair opened with a bearish gap and touched its lowest level since August 7 at 0.6689.  

Following the slide during the Asian session, the pair gained traction as the AUD capitalized on the recovering market sentiment. As of writing, the pair was trading at 0.6766, adding 0.2% on a daily basis.

Sides take a step back in trade war

Earlier today, Reuters reported that Vice Premier Liu He, who has been leading the Chinese side in trade negotiations, said that China was willing to resolve the trade dispute with the US through “calm” negotiations and added that they were against further escalation of the conflict.

Commenting on these remarks, “Great respect for the fact that President Xi & his Representatives want “calm resolution.” So impressed that they are willing to come out & state the facts so accurately,” President Trump tweeted out.

“This is why he is a great leader & representing a great country. Talks are continuing!”

On the other hand, the 10-year US Treasury bond yield made a sharp U-turn and erased its daily losses on improved market sentiment and allowed the US Dollar Index (DXY) to retrace last Friday’s drop. At the moment, the DXY is up 0.7% on the day, making it difficult for the pair to continue to push higher. Later in the day, durable goods orders figures from the US and the Chicago Fed’s National Activity Index will be looked upon for fresh catalysts.

Technical levels to watch for