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  • AUD/USD trades near 0.7710 versus 0.7689 in early Asia. 
  • China’s central bank keeps interest rates unchanged, as expected.
  • Expectations for US fiscal stimulus and flat US yields propel AUD higher. 

The China-sensitive Aussie dollar remains bid, keeping AUD/USD above 0.77 following the People’s Bank of China’s decision to keep interest rates unchanged. 

China’s central bank kept the one- and five-year loan prime rates unchanged at 3.85% and 4.65%, respectively. The status quo decision announced a few minutes before press time was in line with expectations. As such, markets have barely moved following the rate decision. 

Other macro factors favor an upside in the Aussie dollar. The additional large-scale fiscal stimulus, coupled with the vaccination effort, is likely to offset the coronavirus-induced drag on the economy and keep the risk assets bid. 

Janet Yellen argued for substantial fiscal support in her confirmation hearing for Treasury Secretary on Tuesday. “Her initial comments reinforce the Biden Administration’s focus on Main Street over Wall Street. Investors are looking for generous fiscal spending,” BK Asset Management’s Kathy Lien said. 

The pair may face selling pressure on the potential escalation of tensions between the US and China. While Trump is leaving the White House, the incoming President Joe Biden is unlikely to go soft on China and may use a full array of tools to challenge the Asia Giant’s “abusive, unfair and illegal practices, according to Lien. 

Data-wise, the Aussie labor market report and the US housing data scheduled for release on Thursday could inject volatility into the FX markets. Traders should also keep an eye on the Treasury yields, as a rise in borrowing costs may put a bid under the greenback. At press time, the 10-year yield is sidelined near 1.09%. 

Technical levels