• The Aussie appreciates for the third consecutive day to test 0.6765.
• China's decision to ease covid restrictions further boosts market sentiment.
• The safe-haven USD suffers on risk appetite and hopes of Fed easing.

The Aussie is trading on a firm tone on Tuesday, buoyed by positive market sentiment. The pair is rallying for the third consecutive day, extending its rebound from 0.6650, to test the last two week’s high at 0.6765.

AUD/USD reached session highs at 0.6775 in the early European session, before pulling back, although it maintains its bid tone intact, with bearish moves so far contained above 0.6755.

The Aussie appreciates as China eases covid restrictions further

Appetite for risk has been boosted on Tuesday by news from the Chinese National Health Commission, announcing the end of the quarantine for inbound travelers from January, 8. Beyond that, the Commission affirmed that its management of COVID-19 will be downgraded from the current top-level Category A to a less strict Category B.

The sentiment-linked Australian dollar appreciates about 0.6% so far on Tuesday, buoyed by the upbeat market mood. Most Asian stock markets have posted moderate gains, while the European indexes are trading with advances between 0.05% in London to 0.84% in Paris.

On the other end, the US dollar remains on the back foot. The moderate risk appetite and the US data seen on Friday, with the softening inflation pressures paving the path for the Fed to ease its monetary tightening pace, are acting as headwinds for the Greenback.

In a very quiet post-Christmas session, with a thin macroeconomic docket, the focus will be on the North American session, with the release of the US Goods Trade Balance, Housing prices, and the Dallas Fed Manufacturing Index. The impact on Forex markets, however, is likely to be minor.

Technical levels to watch