Yuan rises to 20-month high, AUD/USD clocks 3-1/2 month highs

• USD drops after strong CNY fix by the PBOC.
• AUD/USD hit fresh 3-1/2 month high.

The AUD caught another bid wave in the last few minutes, seemingly due to a big drop in the USD/CNY fix.

The People's Bank of China (PBOC) set the daily Yuan reference rate at 6.4574; down 358 points from Friday's fix of 6.4932, pushing the CNY to a 20-month high against the USD.

The strength in Yuan is working in favor of the Aussie as I write, possibly because markets the AUD is considered as a proxy for China. The AUD/USD jumped to 0.7938 (highest level since Sep. 26) and was last seen trading at 0.7933 levels.

It remains to be seen if the currency is able to hold on to the gains, given the overbought technical conditions and strong US data (released on Friday).

AUD/USD Technical Levels

A break above 0.7978 (76.4% Fib R of Sep-Dec decline) would expose 0.80 (psychological hurdle). A close above the same could yield test of supply around 0.8125 (September high).

On the downside, the violation at 0.7901 (session low) would open doors for a pullback to 0.7879 (5-day MA) and 0.7862 (10-day MA).