AUD/USD Drops on U.S. Dollar Strength in the Tokyo Open

• AUD/USD sinks below the 0.72 level on USD strength.
• A rebound in the greenback could be in the making from support.
• Stimulus and vaccine hopes have been diluted in recent trade.

AUD/USD has been pressured in the Tokyo open, falling from the 0.7210 highs to a low of 0.7178.

The U.S. dollar is catching a bid on Asia, rising some 0.1% and taking down a vulnerable Aussie following the Chinese ban of Australian coal.

There is still some doubts as to whether this is going to come to fruition, according to Australia as Trade Minister Simon Birmingham.

Birmingham said, “we do not have proof that this is occurring” during an interview with Sky News. He has said the Government is aware of the reports and was discussing the issue with the industry.

The timeline for restrictions is unclear at this stage, and this isn’t the first time in 2020 that reports of Chinese restrictions on Australian coal have featured in a similar unconfirmed way.  

DXY bulls eye break of 93.25

Meanwhile, Reuters report that Johnson & Johnson have paused its COVID-19 vaccine trial due to a participant with an unexplained illness, a development that can be attributed to risk-off flows in Tokyo supporting the greenback. 

The USD has underperformed against the backdrop of stronger equities of late, but there are growing uncertainties that could play into the hands of the greenback. 

Risks are growing that renewed stimulus measures may arrive too late to avoid a marked deterioration in activity, and thus the greenback may otherwise find support again. 

''We are of the view that risks associated with covid-19, US-China tensions and the possibility of a contested US election are significant enough for the safe-haven USD to be boosted by short-covering in the coming months,'' analysts at Rabobank explained. 

The DXY is consolidating at support and this could be the makings of a significant correction. 93.25 is a key resistance. 

Meanwhile, we have China’s September month Trade Balance slated as the next risk event on the economic calendar.

Forecasts suggest that the headline Trade Balance will expand from $58.9B to $59.9B in the stated month.

AUD/USD levels