AUD/USD: Bears attack 0.6400 as US-China tension escalates

• AUD/USD extends Friday’s losses amid downbeat concerns.
• US President Donald Trump, Global Times’ Hu Xijin intensify the war of words.
• Atlanta Fed’s GDPNow estimate Q2 2020 read GDP to be -42.8%, down from -34.5 a week earlier.
• Powell’s speech, updates from the US/China can entertain traders on a light calendar day.

AUD/USD remains pressured near 0.6420 at the start of Monday’s Asian session. The pair extends Friday’s losses amid the fresh war of words between the US and China. Also contributing to the pair’s weakness could be the broad risk aversion amid fears of the coronavirus (COVID-19) and further weakness into the world’s largest economy, US.

Also Read: What you need to know before markets open: Risk-off, GBP heavy funda, cold wars, Powell on TV

US-China tussle intensifies…

From initial arguments over the coronavirus outbreak, the tussle between the US and China recently reached to suggest preparing for war. US President Donald Trump said the US was developing a “super-duper missile” to outpace military rivals including Russia and China. On the other hand, China’s Global Times Editor Hu Xijin tweeted to call on China to expand the number of nuclear warheads & enhance nuclear deterrence. 

It should also be noted that US President Donald also reiterated his allegations on the dragon nation while saying that the virus destruction could have been stopped by China.

Fed’s Powell trying not to spread pessimism…

Federal Reserve Chairman Jerome Powell recently noted that the US economy will recover 'steadily' through the second half of 2020. Though, the policymakers struck a cautious tone while saying, “It's going to take 'a while' to get back all GDP lost. Full confidence may have to await the arrival of a vaccine.”

On the data front, the US Retail Sales flashed dreadful figures of -16.4% MoM slump whereas the Atlanta Fed’s GDPNow model currently anticipates US GDP to shrink 42.8% in Q2 2020 versus -34.5% mark the previous week. Furthermore, the Federal Reserve’s latest Financial Stability report also warned of a “significant” hit to asset prices if the pandemic grows.

Amid all these, the risk-tone sentiment remains subdued as gradual re-opening of some economies keep traders hopeful despite the broad risk-off moves. That said, the US 10-year Treasury yields, a gauge of risks, gained 2.5 basis points (bps) to 0.644% by the end of Friday.

It’s worth mentioning that the Aussie-China tension and the fears of the second wave of the virus outbreak also exert downside pressure on the pair.

Looking forward, traders will keep eyes on the Fed Chair Jerome Powell’s TV interview, up for publishing on 23:00 GMT Sunday, early Monday in Asia. Additionally, any surprise comments from the US or China, coupled with the virus updates, will have their impacts on the markets.

Technical analysis

A sustained break of monthly support line drags the Aussie pair closer towards May 07 low of 0.6378. Though, 50-day EMA, currently around 0.6400, restricts the pair’s immediate downside. Meanwhile, 100-day EMA surrounding 0.6480/85 restricts the pair’s immediate upside.