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  • The AUD is barely moving in response to better-than-expected China services PMI.
  • Markets are focused on Trump’s renewed China trade threat and  will likely keep AUD on the defensive.

An above-forecast China services PMI released a few minutes before press time has failed to move the needle on the AUD/USD pair, possibly because investors are focused on the renewed US-China trade war fears.

China Caixin Services PMI (Apr) came in at 54.5, topping the estimate of 52.8 and up from the previous month’s print of 54.5. The Aussie dollar, however, has barely moved and continues to trade at 0.6978 –  a level seen before the release of the upbeat data.

The lackluster response could be associated with Trump’s renewed China trade threat and the resulting risk aversion in the financial markets. Trump tweeted Sunday that tariffs on $200 billion worth of Chinese goods will increase to 25% from the current 10%, as trade talks are progressing very slowly. In addition, Trump threatened to impose 25% tariffs on an additional $325 billion of Chinese goods “shortly.”

In response, China’s Vice Premier Liu He has canceled his trip to Washington, reviving fears of a full-blown trade war.

Therefore, the Aussie, a proxy for China, is under pressure, having hit a four-month low of 0.6963 earlier today. The currency pair may slide further if the risk-off worsens in Europe.

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