The Australian dollar has risen Monday, buying 70.31 US cents from 70.14 US cents on Friday.
Last Friday, the local currency was clinging to solid weekly gains as investors wager Sino-US trade talks at the G20 meeting would manage to avert a new round of tariffs, even if only temporarily.
Still, there was much uncertainty about what exactly might come from the meeting between US President Donald Trump and Chinese President Xi Jinping this weekend.
Any intensification of the dispute would tend to dampen risk appetite and weigh on the Aussie.
The Aussie was holding at 70.03 US cents some distance from the recent five-month trough of 68.32 US cents.
That left it heading for its best week since January with a gain of 1.1 per cent.
Futures show a 75 per cent chance the Reserve Bank of Australia will cut its rates to 1.0 per cent at its policy meeting next week, and follow with a move to 0.75 per cent by year end.
Yet it is hardly alone.
The market is now aggressively pricing cuts from the Federal Reserve, starting with 25 basis points on July 31 and reaching 100 basis points by the middle of next year.
This is a complete reversal from early this year when the Fed itself was projecting two rate hikes for 2019, and a sea change that has broadly undermined the US dollar.
Rodrigo Catril, a senior FX strategist at NAB, noted history showed the US dollar tended to decline in the month after the Fed begins an easing cycle.
“In today’s environment we would expect the market to persist in the view the Fed will be starting to cut rates in July and for the US dollar to continue weakening thereafter, at least initially,” he said.
“This likely means the AUD/USD claws its way back above 70 US cents, but given the prospects of further RBA easing, we expect the pair to range trade around this figure over the coming months.”
The outlook for easing globally has been bullish for bonds with yields on Australian three-year paper hitting historic lows at 0.884 per cent this week, well below the 1.25 per cent cash rate.
Yields were last at 0.94 per cent and down 16 basis points for the month so far.
The 10-year bond future was up 2.5 ticks on Friday at 98.6750, just off an all-time peak of 98.735.
