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  • AUD/USD has seen significant upside in recent trade amid a softening USD on renewed US fiscal stimulus hopes.
  • The pair, having broken above a short-term downwards trendline, is looking to retake the 0.7300 level and move to fresh daily highs.

AUD/USD has pared back almost all of Thursday’s losses in recent trade, having risen to just below the 0.7300 mark. As things stand, however, the pair is still lower by about 0.15% or rouhgly 10 pips.

AUD given reprieve by improving market sentiment

US stocks sharply reversed course late in the US session to close in the green, a move that coincided with weakness in USD (to the benefit of AUD/USD).

Triggering the abrupt recent injection of risk appetite into market in recent trade was the news that US fiscal stimulus talks are back on; Democratic Minority Leader of the Senate Chuck Schumer said that Republican Senate Majority Mitch McConnell had agreed to resume negotiations on another Covid-19 aid package. Meanwhile, Senate and House leaders are reportedly scheduled to meet today to discuss stimulus.

In response to the news of talks restarting, US equities and crude oil markets saw an immediate positive reaction, with the former recovering back into positive territory on the day. As described, USD saw a negative reaction. Moving ahead, Thursday’s restart in US fiscal stimulus talks might have come at the perfect time for a market that was just showing signs of starting to really get worried about the worsening state of the Covid-19 pandemic.

Of course, there is no guarantee that there will actually be a deal; the Democrats still want a big package ($2T plus), while the Republicans have maintained they want something smaller and more targeted ($500B). But with the election in the rear mirror, perhaps a compromise will be more palatable to both sides. Any progress towards a deal will of course continue to provide support for risk appetite and is likely to weigh further on USD.

AUD fundamental considerations

Despite recent upside, AUD continues to be today’s G10 FX underperformer. That is despite Thursday’s blockbuster labour market report; the Australian labour market performed significantly better than expected in October, with the economy adding 178.8K jobs versus expectations for job losses of 30K. Promisingly, much of this rise was driven by gains in full-time employment, which rose by 97K.

Moreover, unemployment rose only very slightly to 7.0%, lower than the expected rise to 6.9%. The increase in the unemployment rate despite the economy adding nearly 180K jobs on net in October can be explained by a jump in the participation rate to 65.8% from 64.8%, the second-largest jump on record (after July’s 1.1% jump from 62.9% to 64.%). The Australian participation rate is pretty much now back to pre-Covid-19 levels.

It appears then that AUD traders are more focused elsewhere, such as on the fact that Aussie state South Australia just announced a six-day “circuit-breaker” lockdown to go into effect immediately, a reminder that the country is still highly vulnerable to a virus whose wrath it has largely escaped thus far.

Coming up on Friday, more tier one Australian data is released in the form of preliminary retail sales numbers for October. Retail sales are expected to post a MoM contraction of 1.5%.

AUD/USD looking to reclaim 0.7300

AUD/USD is currently struggling to surpass resistance in the 0.7290s (Thursday’s Asia session highs) and the 18 November lows. However, if these levels go, it looks as though the pair should reclaim 0.7300 pretty shortly afterwards. That would clear the path for a further recovery towards Wednesday highs around 0.7330, ahead of a potential third test of the top of AUD’s short-term range of the last few weeks at 0.7340.

AUD/USD one hour chart

AUD/USD one hour chart