Forex Market: AUD/USD hits a two-week high as risk sentiment improves, RBA Minutes reveal no indication of further rate cuts

AUD/USD extended gains from the prior trading day and touched highs not seen in almost two weeks on Tuesday, after the Minutes from Reserve Bank of Australia’s policy meeting in September provided no indication of further cuts in record low interest rates.

RBA policy makers reaffirmed that the yield target for Australia’s 3-year government bonds would be kept in place until there is progress towards the central bank’s objectives of full employment and inflation rate of 2%-3%. The Minutes also showed that the bond yield target could be removed before the official cash rate is raised.

Investor risk appetite received an additional boost after reports emerged stating that AstraZeneca had resumed British clinical trials of its coronavirus vaccine, while Pfizer Inc and BioNTech proposed an expansion of their Phase 3 vaccine trial.

Robust macro data from China released earlier Tuesday also supported risk-sensitive currencies such as the Aussie. China’s industrial production grew at the sharpest year-on-year rate since December 2019 in August, while retail sales rose for the first time this year in August, as consumption began to recover.

As of 6:55 GMT on Tuesday AUD/USD was gaining 0.51% to trade at 0.7325, after earlier touching an intraday high of 0.7336, or its strongest level since September 3rd (0.7339). The major pair has retreated 0.68% so far in September, following five consecutive months of gains.

On today’s economic calendar, the Federal Reserve Bank of New York will report on manufacturing activity in the area at 12:30 GMT. The New York Empire State Manufacturing Index probably rose to a reading of 6.0 in September, according to market expectations, from a level of 3.7 in the prior month. In August, new orders remained little changed, while shipments rose at a modest rate.

A separate report by the Board of Governors of the Federal Reserve at 13:15 GMT may show industrial production in the country expanded at a monthly rate of 1.0% in August, according to expectations, slowing down from a 3.0% growth in July. Manufacturing production is also expected to register a slower growth in August, 0.8%, after rising 3.4% in July.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 9.5 basis points (0.095%) as of 6:15 GMT on Tuesday, down from 10.5 basis points on September 14th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7285
R1 – 0.7306
R2 – 0.7325
R3 – 0.7345
R4 – 0.7366

S1 – 0.7267
S2 – 0.7246
S3 – 0.7228
S4 – 0.7209