Having bounced over seven percent from its Jan 3 flash crash to 0.6715, the AUD/USD has stalled since hitting a high of 0.7235 and might now be ready to test levels below 0.7000 again if this week's U.S.-China trade talks stall.
The AUD has been a proxy for China sentiment for several years and also tends to track the emerging market ETF (EEM).
The latter has risen around 11 percent since late December, mainly on optimism the U.S. and China will stitch together a trade agreement before the March 1 deadline for increased U.S. tariffs on Chinese imports.
Those hopes are fading amid worsening tensions between the two countries and signs they remain far apart on some key issues nL1N1ZS1FG.
Many analysts now think the best that can be hoped for is an extension of the truce so more negotiations can take place.
High-level talks are due in Washington on Jan 30-31 and if it is clear that a deal won't be hammered out by the end of March 1, the EM ETF will likely retreat and drag the AUD/USD lower.
A break below 0.7036, the 38.2 Fibo of the 0.6715-0.7235 move, would likely see the AUD/USD fall sharply.