AUD/USD headed to post its highest weekly close in two months above 0.70

• Trade optimism this week helped antipodeans gather strength.
• US Dollar Index looks to close the week flat.
• Investors are likely to close their positions ahead of Trump-Xi meeting.

Since dropping to its lowest level since early January and finding support at 0.6830 last week, the AUD/USD pair has been staging a decisive recovery and is now looking to finish the week above the 0.70 mark for the first time since late April. As of writing, the pair was up 0.13% on the day at 0.7017.

Earlier this week, renewed optimism about the U.S. and China looking to make a deal to end the trade conflict this weekend during the G20 summit in Japan helped antipodeans gather strength. Although the latest headlines suggest that an agreement may not be as easy as thought with China reportedly pushing for the U.S. to lift the ban on Huawei, which Trump administration is unwilling to do, investors remain hopeful.

Reflecting this sentiment, major equity indexes in the U.S. are posting modest gains on Friday and the 10-year Treasury bond yield is staying in the positive territory above the critical 2% threshold. 

Meanwhile, the greenback struggled to make a meaningful recovery throughout the week as investors think a Fed rate cut in July is imminent. Earlier this week, comments from several Fed officials hinted that it was unlikely for the Fed to make a 50 basis points rate cut in July but the US Dollar Index positive reaction stayed relatively shallow. At the moment, the US Dollar Index is at 96.20, virtually unchanged on both the daily and the weekly chart.

Earlier today, the data published by the U.S. Bureau of Economic Analysis revealed that the core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred gauge of inflation, remained steady at 1.6% in May as expected. Commenting on the data, “A softening in the core PCE deflator earlier this year was a big factor in the Fed’s shift to a more accommodative stance. That key measure of inflation rose to 1.6% today and the sequential increase in recent months suggests modestly firmer footing in Q2, though not enough to dissuade the Fed from cutting rates,” said Wells Fargo analysts.

Technical levels to watch for