AUD/USD erases recovery gains, drops to 0.6560 area on risk-aversion

• AUD/USD pared early losses but failed to rise above 0.6600.
• Heightened US-China tensions seem to be weighing on sentiment.
• US Dollar Index rebounds to 99.50 on risk aversion.

The AUD/USD pair staged a modest rebound during the early trading hours of the American session and rose to 0.6600 before making a sharp U-turn. As of writing, the pair was down 0.55% on the day at 0.6560.

AUD weakens on heightened US-China tensions

According to Chinese news outlet Global Times, the spokesperson for China’s National People’s Congress (NPC) on Thursday noted that China will defend its interests if they are undermined by the United States.

These comments, which seem to be assessed as China’s willingness to retaliate if the US were to impose coronavirus-related sanctions, weighed on market sentiment. Reflecting the risk-off atmosphere, Wall Street’s main indexes turned south and were last seen losing between 0.67% and 1.2%. 

Meanwhile, the USD has started to gather strength against its rivals as a safe-haven and the US Dollar Index rose to 99.50 area, where it was up 0.3% on a daily basis.

Earlier in the day, the preliminary Markit Manufacturing PMI in the US came in at 39.8 in May and beat the market expectation of 38 but the positive impact of this data on the market mood was short-lived.

There won’t be any significant macroeconomic data releases from Australia on Friday and the USD’s performance is likely to continue to drive the pair’s movements.

Technical levels to watch for