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  • AUD/USD witnessed a modest pullback from 18-month tops amid reviving USD demand.
  • Concerns about escalating US-China tensions drove heaven flows towards the greenback.
  • The downside remains cushioned as investors seemed reluctant ahead of US jobs report.

The AUD/USD pair momentarily slipped below the 0.7200 mark during the Asian session, albeit managed to rebound around 15 pips thereafter.

The pair came under some selling pressure on the last trading day of the week and eroded a part of the previous day’s positive move back closer to YTD tops. The pullback was exclusively sponsored by concerns about a further escalation in the US-China tensions, which took its toll on the global risk sentiment and drove some heaven flows towards the US dollar.

The US President Donald Trump signed executive orders banning US transactions with China’s tech giant Tencent – which owns the popular WeChat app – and ByteDance – the owner of video-sharing app TikTok. The announcement overshadowed upbeat Chinese trade balance figures and forced investors to take refuge in traditional safe-haven assets.

However, concerns about the pace of the US economic recovery due to the ever-increasing COVID-19 cases, the stalemate in the US Congress over the next round of fiscal stimulus package and declining US Treasury bond yields capped the USD gains. This, in turn, helped limit any deeper losses for the AUD/USD pair, at least for the time being.

Apart from this, investors also seemed reluctant to place any aggressive bets and preferred to wait on the sidelines ahead of Friday’s closely watched US monthly jobs report. The headline NFP is expected to show that the US economy added 1.6 million jobs in July and the unemployment rate is expected to edge lower to 10.5% from 11.1%.

Against the backdrop of Wednesday’s disappointing ADP report, a weaker reading will suggest that the US labour market recovery was faltering and prompt some fresh USD selling. Apart from this, the broader market risk sentiment will further contribute to produce some meaningful trading opportunities around the AUD/USD pair on Friday.

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