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After getting off to a mildly positive start on the back of developments from China over the weekend, AUD/USD has since given up some ground and even briefly traded below 0.93. It was refreshing to see the manufacturing PMI reading bounce to a five-month high of 50.8 and better than an expected 50.7. On Friday there was also an announcement that China will cut the reserve requirement for some banks - mainly to rural borrowers and small companies. This is yet another sign that China is doing what it can to improve sentiment.
Locally we’ve had a raft of releases this morning, including company operating profits which came in at a better-than-expected +3.1%, while building approvals surprised with a 5.6% drop. Local data just continues to give mixed signals, but perhaps this week will offer some insight into what we can expect going forward. Tomorrow we have the RBA meeting which isn’t expected to bring a rate change. However, the statement might offer some precious insight into the RBA’s budget opinion for the first time. Many analysts feel the tight budget will keep the RBA on hold for longer, or better yet a rate cut at some point.
Ranges set to be tested
AUD/USD is now trading at 0.928 after being offered in the 0.93 region. Last week the pair tested lows closer to 0.92, and we could see some support there if this level is tested in the near term. To the upside, a break of last week’s high of 0.933 could signal further near-term strength. It’s a tough call to pick a direction for the AUD this week given the significant event risk on the way. As a result I would be more inclined to play the ranges and react to any breaks lower of higher. We also can’t forget there will be plenty of activity on the USD side of the equation, with non-farm payrolls on the docket.