The AUD/USD pair surged near the key 0.6300 level in the European session on Wednesday (February 5). The Australian currency pair strengthened as investors' risk appetite improved amid expectations that the trade war would not be global and would be confined to the United States (US) and China.

S&P 500 futures fell slightly during European trading hours but have recovered their losses significantly. The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, fell sharply to near 107.50, its lowest level in more than a week.

Market participants are anticipating a deadly trade war between the US and China as China has retaliated with levies of 15% on coal and LNG and 10% on crude oil, farm equipment and some cars against US President Donald Trump's decision to impose 10% tariffs on them.

Although the stable market conditions have provided some relief to the Australian Dollar (AUD), investors expect the relief to be short-lived as Australia will be the victim of the US-China trade war, as China's main trading partner.

In addition, strong market expectations that the Reserve Bank of Australia (RBA) will move towards policy normalization from its February 18 policy meeting will also weigh on the Australian Dollar. (Newsmaker)

Source: FXstreet