• Risk off returns after the US lawmakers confirmed China tariff threat.
• China still to visit Washing and can avoid the increased economic burden.

With the latest comments from the US lawmakers confirming the President Trump’s latest salvo on Chinese goods, the AUD/JPY pair drops to trade near 77.30 during the early Asian session on Tuesday. 

Earlier during the day, Reuters came out with a news report stating that the US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are in line with President Donald

Trump when he threatened China to renew tariffs on $200 billion worth of goods.

Both the headline lawmakers said that the recent change in China’s tone of discussion and tactics relating to a few clauses of the deal pushed them to support President Trump’s threat.

Though, the Chinese policymakers are still to visit Washington for trade negotiation on Thursday and Friday which in turn gives a ray of hope towards successful deal and avoidance of another tariff war between the world’s two largest economies.

USTR Lighthizer and Treasury Secretary Mnuchin both were in favor of the Presidents readiness to levy extra tariffs on the Chinese goods. However, they said that could happen only if the talks fail to reach a decisive point on Friday.

With this, risk-off returned to markets and the Japanese Yen (JPY) strengthened across the board. Additionally, the US 10-year treasury yields also rose remained weak near 2.50%.

Looking forward, monetary policy meeting by the Reserve Bank of Australia (RBA) and Japan’s Nikkei manufacturing purchasing manager index (PMI) will be in the limelight.

The RBA is more likely to offer a 25 basis points (bps) cut to its benchmark cash rate whereas Japanese manufacturing gauge may remain unchanged at 49.5 level.

Technical Analysis

Unless breaking 77.00, it wouldn’t be wise to expect the return of 76.80, 76.00 and 75.30 supports on the chart.

With this, the importance of 77.50, 78.00 and 100-day simple moving average (SMA) level of 78.70 becomes higher.