AUD/USD sits near weekly tops, challenging 0.6770-75 supply zone

• Trade optimism continues to underpin demand for the China-proxy Australian Dollar.
• The USD remains on the defensive amid firming Fed rate cut expectations in October.
• The incoming trade-related headlines will play a key role in driving the pair on Friday.

The AUD/USD pair traded with a mild positive bias for the second consecutive session on Friday and is currently placed near weekly tops, around the 0.6770-75 supply zone.
 
The pair added to the previous session’s solid intraday bounce of over 60 pips from one-week lows and remained well bid amid growing trade optimism. The US President Donald Trump characterized the first day of trade talks between the top US and Chinese negotiators as very good and said that he is still planning to meet Chinese Vice Premier Liu He on Friday.

Trade optimism remains supportive

Adding to this, a White House official said that the talks had gone probably better than expected. The incoming trade-related headlines raised the possibility of a currency agreement this week, which coupled with a more bullish market mood underpinned demand for trade-sensitive currencies – including the China-proxy Australian Dollar.
 
Meanwhile, the prevalent risk-on mood allowed the US Treasury bond yields to climb further through the Asian session on Friday. The US Dollar, however, failed to capitalize on rising US bond yields and continued to be weighed down by increasing odds of another interest rate cut by the Fed in October, further fueled by Thursday’s softer US CPI figures.
 
Data released on Thursday showed that the headline US consumer price index (CPI) was unchanged in September – the weakest reading in eight months – and held steady at 1.7% on an annual basis. Meanwhile, the core CPI rose by just 0.1% from the prior month, leaving room for the Fed to lower interest rates further at its upcoming meeting on October 29-30.
 
Moving ahead, Friday’s US economic docket, featuring the release of Prelim UoM Consumer Sentiment, will now be looked upon for some short-term trading impetus later during the early North-American session.

Technical levels to watch