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- AUD eyes chart resistance amid U.S.-China comments, FOMC lift.

- Chinese Vice Premier "cautiously optimistic" about trade talks.

- Reuters reports talks & Dec 15 tariffs could be pushed out into 2020.

- But Trump says China is not "stepping up".

- Hong Kong bill further complicates path toward 'phase one' deal.

- FX markets welcome FOMC minutes putting Fed, U.S. rates on hold.

The Australian Dollar was on the front foot against its major rivals as currency markets reacted to words of optimism from China on ongoing trade talks with the U.S., while investor sentiment was further boosted by minutes from the latest Federal Reserve (Fed) meeting.

Chinese Vice Premier Liu He is "cautiously optimistic" about the prospect of reaching a 'phase one deal' that at least temporarily ends the trade war between the world's two largest economies, according to a report from Bloomberg News that hit the wires amid mounting unease over the trajectory of the talks.

The Australian Dollar has become something of a proxy for sentiment on U.S.-China trade negotiations, benefiting from signs of progress in talks and falling when progress stalls; this is understandable owing to Australia's strong reliance on China as a market for its exports.

The comments from Liu countered the negative sentiment pervading global markets just 24 hours earlier after more U.S. lawmakers threw their weight behind the Hong Kong Human Rights and Democracy Act, advancing it along the pathway to President Donald Trump's desk, drawing an angry rebuke from China and leading some to suggest it might imperil the ongoing trade talks.

Vice Premier He's comments were welcomed in overnight trading even as President Trump himself continued to decry a lack of progress in the discussions while dodging questions about an approaching December 15 tariff deadline.

Above: Pound-to-Australian-Dollar rate shown at daily intervals, alongside AUD/USD (orange line, left axis).

"We’re doing very nicely with China, but I like it the way it is now, because we’re taking in billions and billions of dollars, and we’re giving some of that money to farmers and others," Trump told reporters following a visit to an Apple Inc manufacturing facility in Austin, Texas. "I don’t think they’re stepping up to the level that I want...We are dealing with China. I have a great relationship with President Xi. They’re a great country, but we’re a greater country than China.

Reuters later reported that talks aimed at firming up and formalising the October 11 agreement struck between President Trump and China's Vice Premier Liu He may roll on into the New Year, and that the December 15 implementation of new tariffs announced in August could also be moved with them. Without a delay of some kind, new tariffs will be imposed on all of China's remaining annual exports to the U.S. on December 15.

Bloomberg News reported Tuesday that U.S. and Chinese officials are trying to thrash out an agreement that removes some of the tariffs imposed by either side in the last 18 months. But just a day earlier CNBC reported that China's government is pessimistic about the prospect of finalising a 'phase one deal' because the White House isreluctant to remove enough of the tariffs. All of those reports moved markets when released.

Above: Pound-to-Australian-Dollar rate shown at 4-hour intervals, alongside AUD/USD (orange line, left axis).

"The market is clearly still hoping for an agreement over the coming weeks or for an extension of the negotiation period. This hope has persisted stubbornly so that at present the risk off periods are short-lived. However, that might well change as the tariff deadline approaches," says Thu Lan Nguyen, an analyst at Commerzbank. "The back and forth in the trade war headlines has made it clear that there remains a big gap between China and the US on many issues."

Australia's commodity-backed and China-exposed Dollar was among the top performing major currencies on Thursday, no doubt in part because of China's comments on the talks, which are less frequent and sometimes more telling than those of the White House. However, minutes from the latest Federal Reserve interest rate meeting were also at play.

The minutes confirmed that sentiments expressed in Congress last week by Chairman Jerome Powell are widely held on the Federal Open Market Committee of rate setters. After a split decision to cut U.S. rates for a third time in October, many on the FOMC agreed that U.S. monetary policy is "well calibrated" and that it will take a "material reassessment of the outlook" to change that, according to the minutes.

"With the Fed firmly paused at the current juncture, it seems that the near-term driver for the US dollar will be prospects for a near-term deal between the US and China," says Fritz Louw, a currency analyst at MUFG. "President Trump might want to push signing a mini-deal into 2020 as he goes into the elections. If this is the case, and a deal is delayed to next year, this should weigh further on risk sentiment and support the dollar in the near term."

The Fed has now effectively telegraphed that its interest rate cutting cycle is over for the time being, which is positive not only for the Dollar, but also for other currencies because it was a weak global economy that got the bank slashing rates in the first place. However, with the Fed fading from the agenda for the time being, some say the ebb and flow of trade-related headlines will be the biggest driver of curency markets up ahead.

That might not be great news for the Australian Dollar, because it's knocking on the door of a 'resistance level' on the charts that means it would now be facing an uphill struggle even at the best of times. Failure at the 0.6830 resistance level might prompt a fresh move lower in AUD/USD and further entrench the nascent upturn in the Pound-to-Australian Dollar exchange rate given broad support for Sterling, which is celebrating a solid polling lead for the Conservative Party.

"Back on the chart, resistance is seen at 0.6830/50 (38.2% Fibonacci retracement, 21-dma) before the next at 0.6880 (50% fibo). Stochastics are turning from oversold condition as AUDUSD violated the falling wedge," says Saktiandi Supaat, head of FX research at Maybank in Singapore.

Above: Pound-to-Australian-Dollar rate shown at daily intervals, alongside AUD/USD (orange line, left axis).

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