AUD remains remarkably resilient

After a frantic week in the FX space last week, it has been a quiet start for the major currencies.

Major currency pairs were relatively sidelined in US trade on Friday, with all the Fed speak failing to generate any big moves. Tight ranges were maintained with the exception of AUD/USD, which printed new cycle highs of 0.968. AUD/USD has really been streaming away and the RBA seems to have given the local currency permission to continue rallying. RBA Governor Stevens even said the central bank’s hands are tied when it comes to keeping the AUD at lower levels.

The currency passed a couple of key tests last week with China data and Mr Stevens’ speech both failing to cap its short-term uptrend. As I said last week the 0.9720 level, which is the 50% retracement of the drop from May to July, is the next level to watch in the near term. On the calendar this week we will be watching the local CPI print where a 0.8% rise is expected and RBA Deputy Gov Lowe speaking. There will also be Caterpillar’s earnings which tend to be a bellwether for the global economy, along with China’s HSBC flash manufacturing PMI to look out for.

US data to start rolling in again

With the US government reopened now, we expect to see some key data releases come back online. The non-farm payrolls print and unemployment rate readings are due out tomorrow and will help shape the tone for the US dollar this week. The market is looking for around 179,000 jobs added and an unemployment rate of 7.3%. This report will help shape tapering expectations and certainly have a bearing on the USD.

While most major FX pairs have been quiet in Asia, USD/JPY has started making a move higher. The pair has just nudged through 98 after Japan’s trade deficit (-¥1.09 trillion) came in below estimates. This weekend the yen is the only major release until Friday when we get the CPI reading. Given inflation is one of the BoJ’s key metrics, this CPI report will be the main event of the week for USD/JPY. I just don’t see a trade on the pair at the moment until it breaks out of this range it is currently stuck in. Perhaps data out of the US will finally result in some movement in the pair.

Europe eyeing a positive week of data

EUR/USD and GBP/USD were quite sidelined at elevated levels on Friday and continued to pull away from some key moving averages. There is a stack of PMIs out of Europe this week and traders will be looking for further signs that the slow improvement in Europe is continuing. Should this be the case then there is a strong probability EUR/USD will extend its gains.

Out of the UK we have MPC asset purchase facility and bank rate votes on Wednesday followed by the GDP reading on Friday. I continue to eye a bullish move on cable, particularly if the central bank continues to sound a hawkish tone.

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