AUD/USD has surrendered the round-level support of 0.6700 in the early European session. The Aussie asset is declining towards Wednesday’s low at 0.6675 as deepening United States-China tensions over Taiwan have trimmed the risk appetite of the market participants. US’s promise of delivering arms to Taiwan on a timely basis and strengthening economic cooperation on trade and technology has made China uneasy.
China’s Foreign Ministry Spokesperson made an allegation against the US after the commentary from US House of Representatives Speaker Kevin McCarthy for breaking commitment over the Taiwan issue. The event has triggered volatility for the Australian Dollar. It is worth noting that Australia is the leading trading partner of China and the deterioration of US-China relations would have a cascading effect on the Australian Dollar.
Escalating US-China tensions have trimmed the appeal for risk-perceived assets. S&P500 futures have stretched losses on expectations that US-China tensions could lead to some sanctions on the dragon economy. US equities have been registering bearish settlements for the past two trading sessions amid evidence of a slowdown in the US economy.
The US Dollar Index (DXY) looks firm above 102.00 and is expected to extend its recovery further. However, the slowing US labor market could restrict its upside. The demand for US government bonds is recovering quickly in hopes that the Federal Reserve (Fed) will consider an early pause to the policy-tightening spell. This has dragged 10-year US Treasury yields to near 3.29%.
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