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  • AUD/USD gradually pulls back from the one-week low.
  • Wall Street’s bounce confronted previous risk-off sentiment led by US-China tussle.
  • Second-tier activity numbers can offer intermediate direction ahead of the RBA.
  • The RBA is anticipated to keep monetary policy unchanged, the rate statement will be the key.

AUD/USD holds onto recovery gains from 0.6392 while taking the bids near 0.6430 at the start of Tuesday’s Asian session. Even so, the Aussie pair stays below April month high as the tension between the US and China grinds markets ahead of the key event RBA.

Risk recovery or reset?

US President Donald Trump and Secretary of State Mike Pompeo’s allegations against China, for the coronavirus (COVID-19) outbreak, failed to find any support from the World Health Organization (WHO). The global health institute recently defied the US claims that experiments in China’s Wuhan laboratory are the reason behind the outbreak by saying it didn’t receive any proof from the US.

Not only claiming that the dragon nation is behind the virus outbreak, but US President Donald Trump also said that China didn’t respect the trade deal and threatened to cancel the much-championed the trade accord.

Though, the recent update from WHO seems to have downplayed the US allegations and hence the risks have been recovered with eyes on further developments.

Also supporting the risk reset could be the SkyNews report suggesting the development of an antibody that can contain virus infection. Further, updates that the US treasury seeks to borrow $3 trillion also help markets to stay away from the earlier risk aversion.

While portraying the mood, Wall Street manages to close in the positive territory whereas the US 10-year Treasury yields remain mostly unchanged near 0.63%.

It’s worth mentioning that the Aussie pair’s early-Monday performance was also hindered by mixed figures of TD Securities Inflation and Building Permits.

Moving on, AiG Performance of Construction Index and Commonwealth Bank Services PMI, as well as Composite PMI, are likely to offer immediate direction to the Aussie pair ahead of the RBA.

The RBA is expected to keep the benchmark interest rates near the record low of 0.25%. The central bank is anticipated to reiterate its readiness to act if necessary. Though, the major attention will be on the rate statement as it would reflect how the pandemic has weighed on the economic forecasts.

Read: RBA Preview: Markets looking for forecasts, not action

Other than the RBA, US ISM Non-Manufacturing PMI and Markit Composite PMI will be the key to watch. However, nothing will stop the markets from responding to trade/virus updates.

Technical analysis

Buyers are waiting for a sustained break of 100-day SMA, currently near 0.6560 whereas 21-day SMA around 0.6360 offers immediate support.