The AUD/USD has moved to the top of recent ranges following the dovish turn in Fed expectations Wednesday, but a clean break higher will hinge on a benign outcome from the weekend meeting between Presidents Trump and Xi.
The AUD outperformed most currencies when the USD broadly weakened following Fed Chair Powell's assessment the 'neutral rate' is close at hand .
A more cautious Fed will support beaten down risk assets, but the relief might prove short-lived if the Dec 1 meeting on the sidelines of the G20 results in an escalation of the trade war.
The bar of expectations has been set very low, with the chances of a trade deal considered close to zero.
Those looking for a Santa rally in risk assets are hoping the meeting will be amicable enough to convince the U.S. president to hold off increasing the tariff rate on $200 billion of Chinese imports to 25 percent from 10 percent in January or at least not follow through with the threat of fresh tariffs on all remaining Chinese imports.
If trade tensions don't escalate following the meeting, the AUD/USD will likely surge towards the 200-day MA (currently 0.7423) and the 38.2 Fibo of the 2018 decline at 0.7446.
If the summit results in a significant escalation of the trade war, the AUD/USD could easily fall back to support at the Nov 13 low at 0.7164.