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  • Worsening US-China relations revived the USD demand and exerted some pressure on the aussie.
  • The upbeat mood in the equity markets benefitted riskier currencies and helped limit the downside.
  • The technical set-up favours bulls and supports prospects for the emergence of some dip-buying.

The AUD/USD pair edged lower on Wednesday and retreated further below mid-0.6600s, eroding a part of the previous day’s strong positive move to 2-1/2-month tops.

The overnight optimism over a potential COVID-19 vaccine seemed to have faded amid worsening US-China relations. Diplomatic tensions between the world’s two largest economies escalated further after the US President Donald Trump threatened a strong reaction to China’s planned national security law for Hong Kong.

This, in turn, overshadowed rising hopes of a sharp V-shaped recovery for the global economy and helped revive the US dollar’s safe-haven demand. A modest pickup in the USD demand turned out to be one of the key factors that exerted some downward pressure on perceived riskier currencies, including the Australian dollar.

The pair stalled its bullish momentum near the 0.6675 region – just ahead of March monthly swing highs – and witnessed a modest pullback during the Asian session on Wednesday. The downtick seemed rather unaffected by better-than-expected Australian data, showing that Construction Work Done shrank 1% in Q1 as compared to 1.5% fall anticipated.

However, the upbeat mood around the global equity markets helped limit any deeper losses. The pair, so far, has managed to hold comfortably above the previous swing high resistance breakpoint near the 0.6615 region. Hence, any subsequent dips might still be seen as a buying opportunity amid absent relevant market-moving US economic releases.

Technical levels to watch