The AUD tends to be driven by domestic data and RBA policy expectations when global markets are relatively stable, but is a liquid proxy for Asian risk during times of significant market turbulence.
The recent Wall Street sell-off has been driven by U.S.-China trade uncertainty after weeks of optimism .
Should the deadlock extend, the global growth outlook will be downgraded, taking stocks and emerging markets lower.
The RBA adopted a dovish bias at last week's meeting and Eikon RBAWATCH now has a 25bps rate cut fully priced for the August meeting.
The combination of the uncertain global outlook, likely lower Australian yields and the RBA's preference for a weaker AUD should be toxic for the AUD/USD.
The USD should remain resilient, having shown little correlation with risk/stocks in recent months.
Technically the AUD/USD picture is bearish, with 5, 10 and 21 daily, weekly and monthly MAs heading south.
This is an unusual and powerful bearish trending setup. There's solid risk-reward in shorts on a close below 0.6936, 61.8% of the 2019 rise, with a stop above - or on a topside failure above 0.7000, using the falling 0.7046 21 DMA as a trailing stop - with both trades looking for the 0.6715 flash crash low.