AUD/USD slides back below 0.6500 on US-China trade war fears, notable USD strength

AUD/USD attracts some sellers on Monday amid a goodish pickup in the USD demand.

Bets for slower Fed rate cuts lift the US bond yields higher and lend support to the USD.

US-China trade war concerns further contribute to driving flows away from the Aussie.

The AUD/USD pair starts a new week/month on a weaker note and slides back below the 0.6500 psychological mark during the Asian session, snapping a three-day winning streak. Moreover, the fundamental backdrop supports prospects for the resumption of the recent downtrend witnessed over the past two months or so. 

Worries about the second wave of the US-China trade war after US President-elect Donald Trump takes office in January drive some haven flows towards the US Dollar (USD) and undermine the China-proxy Australian Dollar (AUD). In fact, Trump has pledged big tariffs against America’s three biggest trading partners – Mexico, Canada and China. Furthermore, Trump threatened a 100% tariff on the so-called 'BRICS' nations – Brazil, Russia, India, China, and South Africa – if they replace the USD with another currency for international transactions. 

Meanwhile, the growing market conviction that Trump's tariff plans could push consumer prices higher and restrict the Federal Reserve (Fed) from easing its monetary policy further triggers a fresh leg up in the US Treasury bond yields. Apart from this, persistent geopolitical risks stemming from the protracted Russia-Ukraine war assist the safe-haven USD in staging a recovery from a nearly three-week low touched on Friday. This overshadows the Reserve Bank of Australia's (RBA) hawkish stance and does little to lend support to the Aussie.