AUD/USD pares early gains, tests critical 0.70 handle

• Trade surplus in China narrows in April.
• US Dollar Index struggles to find direction for the third straight day.
• China is said to have backtracked  on most aspects of the trade deal.

After fluctuating sharply in the Asian trading hours, the AUD/USD pair rose to a daily high of 0.7027 in the European morning but failed to preserve its momentum and erased its gains. As of writing, the pair was down 0.2% on a daily basis at 0.6996.

Earlier today, the market reaction to the Reserve Bank of New Zealand’s rate cut decision lead to wild swings in the NZD/USD pair and caused the volatility of the strongly-correlated AUD/USD pair to increase as well. Additionally, the data from China showed that the trade surplus in April narrowed to $13.84 billion from $32.67 billion and fell short of the expectation of $35 billion to remind investors of the negative impact of the U.S. tariffs on Chinese exports, which declined by 2.7% on a yearly basis.  

Regarding the U.S.-China trade dispute, Reuters today reported that President Trump’s angry tweets were a response China backtracking in last week’s talks on nearly all aspects of the trade deal that sides previously agreed upon, suggesting that we are unlikely to see a positive outcome after talks in Washington this week, making it difficult for the AUD to find demand.

Meanwhile, with investors remaining on the sidelines amid escalating geopolitical tensions the US Dollar Index is struggling to set its next short-term direction, extending its consolidation above the 97.50 mark for the third straight trading day. There won’t be any significant macroeconomic data releases from the U.S. and the market is likely to continue to react to trade-war headlines.

Technical levels to consider

With a daily close below the 0.7000 (psychological level), the pair could extend its slide to 0.6960 (May 6 low) and 0.6915 (Jan. 2 flash crash low). On the upside, resistances are located at 0.7030 (daily high), 0.7065 (20-DMA) and 0.7090 (50-DMA).