AUD/USD: On the back foot below 0.6600 as risk tone sours

• AUD/USD keeps the pullback from 10-week top of 0.6617.
• Escalating tension between the US and China, Hong Kong issue being the latest addition, weigh on the trade sentiment.
• US PMIs recover from multi-year low, central bankers keep trying to defy negative rates.
• A light calendar will keep risk catalysts in the spotlight.

AUD/USD stays pressured around 0.6565 at the start of Friday’s Asian session. In doing so, the pair extends the U-turn from Wednesday’s high, also the highest since March 10, amid fresh risk aversion wave. The fears of the coronavirus (COVID-19) resurge as well as the US-China tussle are the latest factors contributing to the market’s risk-off despite not so negative economics.

Hong Kong issue adds fuel to US-China tussle…

As if allegations over the virus outbreak and trade deal weren’t enough, signals that China will form new rules to tighten its grip over Hong Kong seem to have triggered a fresh rout between the US and the Asian major. The reason being the early-month signals from the US that it will make sure Hong Kong is a free country. The Trump administration’s interventions into China’s “personal” issues have repeatedly criticized by the dragon nation and the same pattern got repeated on Thursday’s National People’s Congress (NPC).

Virus wave 2.0 is also an issue but Trump likes to ignore it…

With the latest data from Reuters suggesting global cases crossing five million marks, with cases in South US and some parts of Asia increasing, virus woes stay on the cards. Even so, US President Donald Trump recently said that he will not close the country if the second wave of virus hits.

Amid all these, global central bankers keep trying to defy the negative rates, except for the BOE Governor Andrew Bailey. Additionally, activity data from Australia and the US have been slightly better than their previously devastating figures, still being in the contraction region.

That said, Wall Street closed the day in red, with mild losses, whereas US 10-year Treasury yields down near 0.68%.

Given the lack of major data from Australia, the pair traders may keep eyes on the US-China tussle as well as virus headlines for fresh impulse. It should also be noted that comments from China’s NPC can add volatility to the markets.

Technical analysis

Despite stepping back from the multi-day top, the Aussie pair stays above 100-day SMA, which in turn keeps it on the bulls’ radar. However, a sustained break of 200-day SMA, at 0.6662 now, becomes necessary for the quote to challenge March month high surrounding 0.6685. On the downside, a daily closing below 100-day SMA, currently around 0.6500, could recall 0.6400.