AUD/USD stays depressed above 0.6500 as risk aversion gains momentum

• AUD/USD remains on the back foot, but above 0.6500, after a two-day losing streak.
• China’s push for national security legislation in Hong Kong intensified US-China tension.
• GT’s HU Xijin fires shots to the Trump administration, US Secretary of State Mike Pompeo has condemned China’s proposal.
• A light calendar amid the UK, US holidays will keep risk catalysts in the spotlight.

While extending pullback from Friday’s US session lows near 0.6515, AUD/USD seesaws around 0.6535 at the start of the week’s trading on Monday. The pair recently got burnt amid the US-China tussle and had to take a U-turn from the monthly high of 0.6617 during last week.

Read: China’s plan of national security law in Hong Kong puts Trump in an unwelcome spot with Xi

Hong Kong issue adds fuel to the US-Sino fight…

As if the coronavirus (COVID-19) and trade deal weren’t enough, China’s latest National People’s Congress offered an additional reason for the US and Chinese policymakers to disagree over one more issue and propel the risk-off sentiment.

The Asian major’s push for the national security legislation in Hong Kong triggered a series of harsh comments from the US while also activating the first protests of 2020 in the financial hub. Although US President Donald Trump is yet to enter the show with direct hits, Secretary of State Mike Pompeo recently showed his discomfort with the legislation and marked support for the protesters.

Other than US President Trump’s likely attack on the issue, final voting in the US House over the bill to sanction Chinese authorities in Xinjiang case as well as the Trump administration’s push for delisting Beijing’s equities could also strengthen the risk aversion wave. Additionally, the Aussie-China discomfort might as well be magnified after China’s anti-trade steps towards the Scott Morrison-led government. It was heard recently, not confirmed, that the Aussie government joined the league of Western leaders to oppose China’s rush towards gripping Hong Kong.

That said, likely hopes of the US economic restart and increasing odds of the virus cure could keep a tab on the market’s risks.

It should also be noted that the absence of any major data/events on the economic calendar, coupled with the US holiday, might keep the markets a bit less active. Though, trade, politics and virus updates will keep the traders entertained.

Technical analysis

While the currently risk-off sentiment drags the Aussie pair towards a 100-day EMA level of 0.6485, a three-week-old rising trend line could challenge the bears afterward. Meanwhile, buyers will not risk entry unless the pair close beyond 0.6625 comprising 200-day EMA.