• AUD/USD trades cautiously in the early European session.
  • Softer US dollar is supportive of the pair’s upside.
  • The Aussie remains vulnerable to Chinese trade concerns

The AUD/USD pair prints minute gains on Friday in the early European session. The pair confides in a very narrow range of 12 pips as it fails to extend the previous day’s momentum.

At the time of writing, AUD/USD trades at 0.7754, up 0.03% on the day.

The risk on mood boosted the sentiment surrounding the AUD. The riskier assets gain as the US Treasury yields slide to their lowest level in the last four months at 1.43% with 1.63% losses.

Commodity prices are also surging with Gold prices trading at $1,902.45, up 0.32% on the day. The iron ore prices rebounded to an all-time high as the China inventories are at a four-month low, which indicates growing economic activity. The antipodean gained little traction on the rising commodity prices.

The subdued performance of the aussie can be traced back to the growing tensions with China, the largest trade partner of Australia. China has revealed a new scrap policy, which could wipe out more than $81b from the Australian economy. The Chinese policymakers want to reduce their dependence on iron ore exports, the biggest trading resource of Australia.

Meanwhile, Beijing has accused Australia of “ abusing state power” by restricting Chinese investment.  The Australian Prime Minister Scott Morrison lashed tariffs imposed by China on a variety of Australian products as “ completely unconscionable”. The tussle remains a hardening factor for the aussie performance.

In addition to that, the Reserve Bank of Australia’s Assistant Governor, Chris Kent, said that the central bank would continue with its stimulatory monetary conditions until its dual mandate of inflation and employment targets are met.

On the other hand, the greenback remained pressurised as investors’ risk appetite improved after the highly anticipated US Inflation data, which came at 5% highest since August 2008 failed to trigger any major market movement. The market remained unfazed by the readings. The rising price pressures are considered transitory on supply chain bottlenecks as the US economy opens up gradually after the pandemic hit it last year.

As for now, the market risk and the US dollar dynamics would continue to impact the pair’s performance.

AUD/USD additional levels