How far can the AUD bounce?

The main theme in the FX space was a weaker USD as bonds rallied and yields fell.

Source: Bloomberg

Economic data was mixed – the ADP non-farm payrolls reading came in at 213,000, beating expectations of 207,000 and confirming that the economy is strong on that front. This is a good start heading into Friday’s official payrolls data. However, manufacturing data tapered off a bit, which was a bit of a disappointment. On top of all this, there is another Ebola scare and some felt this had a play on the USD. The overnight weakness in the greenback saw the recent trends in major currency pairs stall temporarily.

After being sharply sold off on the back of retail sales yesterday, AUD/USD managed to reclaim the $0.8700 handle. I feel this is more a symptom of temporary USD weakness as bonds rallied and yields fell, and it’ll only provide more opportunities to get short.

The $0.8660 (January lows) level managed to hold, although I feel a retest could be on the way in the near term. On the calendar today, we have building approvals and trade balance data due out at 11.30am AEST. This is likely to cause some volatility for the pair and I would look to sell any rallies into the $0.8800 region.

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