Early on Tuesday, the Australian dollar is trading close to four-and-a-half month highs against the US dollar over rising optimism in markets about the signing of the phase one trade deal between the US and China. At the time of writing, AUD/USD is trading around 0.691.

Risk currencies such as the AUD and the NZD have benefited significantly ever since the US and China announced the finalizing of their partial trade deal, helping lift the mood in the markets. AUD/USD has been especially bullish as Australia is one of China’s key trading partners and has suffered from the fallout effect of the prolonged trade war.

Any improvement in trade tensions should help boost economic growth in Australia, helping the AUD turn bullish. The AUD has also strengthened following China’s decision to cut tariffs on a variety of imports starting 2020, in a bid to boost its economic growth via spurring consumer spending.

Australia’s economy is closely linked with that of China, and any improvement in China’s GDP has a positive correlation with it. However, the primary driver of bullishness in AUD/USD remains the announcing of the phase one trade deal and expectations that it will improve economic growth globally.