The South China Morning Post has picked up on the escalating tensions between the US and China.

In an article published over the weekend, it stated that:

US-China tensions set to worsen as moderates lose out to hardliners, observers say.

Chinese groups calling for more ‘fighting spirit’ are getting the upper hand on those who favour calm and cooperation, government adviser says.

 

Lead paragraphs

From Hong Kong to Covid-19, trade to the South China Sea, Beijing and Washington are clashing on a growing number of fronts and in an increasingly aggressive way.

Moderates who favour dialogue and cooperation as a way to resolve China’s disputes with the United States are losing ground to hardline groups bent on taking the fight to Washington, according to political insiders and observers.

“There are two camps in China,” said a former state official who now serves as a government adviser and asked not to be named.

“One is stressing the combat spirit, the other is trying to relieve tensions. And the former has the upper hand.”

Relations between China and the US are under intense pressure. After Beijing moved to introduce a national security law for Hong Kong, US President Donald Trump said on Friday that Washington would begin eliminating the special policy exemptions it grants the city, as it no longer considers it autonomous from mainland China.

Key notes

  • US Pres. Trump: Will take steps to sanction Hong Kong officials involved in eroding of autonomy

  • US Pres. Trump reportedly won’t announce additional tariffs on China

  • China: NBS Manufacturing PMI edges lower to 50.6 in May, remains in expansion territory

Market implications

This week will be very important for AUD while a whirlwind of geopolitical headlines are expected to run the show. For AUD/USD technical analysis, see here: Chart of the Day: AUD/USD is at make-or-break resistance, 0.6400 or 0.6820.