AUD/USD soars to near 0.6300 as market sentiment turns cheerful

• AUD/USD rallies to near 0.6300 as the market sentiment becomes favorable for risk-sensitive assets.
• The risk-appetite of investors improves on the assumption that the scope of the trade war will be limited between the US and China.
• US-China trade war and RBA dovish bets would limit the Australian Dollar’s upside.

The AUD/USD pair surges to near the key level of 0.6300 in Wednesday’s European session. The Aussie pair strengthens as the risk appetite of investors has improved amid expectations that the trade war won’t be global and will be limited between the United States (US) and China.

S&P 500 futures are slightly down in European trading hours but have recovered their losses significantly. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines sharply to near 107.50, the lowest level in more than a week.

Market participants are anticipating a lethal trade war between the US and China as the latter has retaliated with levies of 15% on coal and LNG and 10% for crude oil, farm equipment, and some autos against US President Donald Trump’s decision to impose 10% tariffs on them.

Though a steady market environment has offered some relief to the Australian Dollar (AUD), investors expect the relief would be short-term as Australia would be the victim of the US-China trade war, being a leading trading partner of China.

Apart from that, firm market expectations that the Reserve Bank of Australia (RBA) will pivot to policy normalization from the policy meeting on February 18 would also weigh on the Australian Dollar.

In Wednesday’s session, investors will focus on the US ADP Employment Change and the ISM Services Purchasing Managers’ Index (PMI) data for January.