AUD extends gains on a raft of positive data

It was another lacklustre session in US trade as investors weighed a disappointing ADP non-farm employment change print.

The reading came in at just 175,000 when the market was expecting 191,000. This has perhaps prompted some caution heading into Friday’s non-farm payrolls print, which still has analysts concerned that last month’s poor showing was not completely seasonal.

The non-farm payrolls reading is expected to bounce back strongly to 184,000 after having come in at just 74,000 last month. Apart from the ADP reading, we also got the ISM non-manufacturing print which was slightly better than expected at 54. The indecision among traders was quite evident as most of the major risk currency pairs were sidelined through US trade. AUD/USD was one of those pairs as it just held onto 0.89 heading into some key local data. Trade balance data showed a $468 million surplus when the market was expecting a $200 million deficit. The headline retail sales reading was in-line with estimates at 0.5%, while NAB business confidence also showed a sharp improvement to 8.

Central bank watch

This data saw the AUD squeeze even higher, nudging through this week’s highs against the greenback and coming within striking distance of the 0.90 mark. This move higher was seen across other AUD crosses like AUD/JPY and AUD/EUR. The highest level for AUD/USD this week was 0.9086 and that is the next level to look out for.

AUD/EUR is one pair I’m watching closely at the moment given the activity coming up in Europe and the emerging market space. The pair is just testing its January highs and given near-term fundamentals for the AUD and EUR seem to be diverging, there is potential for a short-term squeeze through 0.67. On the AUD front, this week has seen the AUD switch to a neutral bias and today’s positive data added pressure to the upside.

Tomorrow we have the RBA’s statement of monetary policy which could come with some upgrades to inflation forecasts. This could see the AUD extend its gains and encourage fresh buying. The AUD will also be watching emerging market activity closely of which a continued improvement would be positive for risk. On the other side of the equation, the ECB decision is due out today and given the challenges the region has been facing, many analysts expect to hear commentary around unconventional methods the ECB might be looking at to help lift the economy.

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