Australian dollar (AUD), the third most volatile of the G10 currencies, continues to rally against US dollar (USD), building on week’s strong positive momentum during Friday’s Asian session. Traders are intently focused on the US-China trade talks. At the same time, AUD/USD is eyeing important resistance at 0.6450. This upward movement comes amidst a backdrop of mixed economic data from Australia, including the Producer Price Index (PPI) and Retail Sales figures.
In the first half of the current session, AUD/USD is moving up to test the 0.6450 level, supported by positive sentiment on US-China trade negotiations. Recent progress in talks between the two economic titans has raised expectations. A strong resolution has the potential to greatly increase the flow of global trade. This sentiment serves to increase the Australian dollar. It’s usually at the behest of global commodity prices and what’s happening in the international trade environment.
Meanwhile, the Australian Bureau of Statistics provided counterpoise with its inconclusive PPI data that made obscure its near-term course. Such variations would have a profound effect on trading strategies. While some components of the PPI revealed inflationary pressures, others suggested stability, leaving traders to interpret the overall implications for monetary policy. The market reaction to this somewhat mixed data shows the cautious but optimistic mood that has taken hold among investors.
Aside from the PPI miss, Australian Retail Sales data helped define AUD/USD price action. The retail sector’s performance is vital for gauging domestic economic health, and recent figures have indicated resilience in consumer spending. Traders are trying to price how these indicators will translate into worse conditions in the economy ahead. This uncertainty still clouds the Reserve Bank of Australia’s (RBA) policy outlook.
Traders are on high alert for forthcoming events set to this economic tableau. They are especially glued to the screen for the widely expected US Non-Farm Payrolls (NFP) report. The next NFP number is due out next week. This release will provide further insight into the resilience of the US labor market and may potentially have a strong effect on the valuation of USD. A robust NFP release has the potential to increase expectations for Fed interest rate increases. Such a move would boost the odds of changing the fundamental AUD/USD dynamic.
Additionally, the weekend’s Australian federal election adds another layer of uncertainty for traders. Political outcomes might play their part to shape market sentiment and subsequently weigh on the Australian dollar’s performance next week. As such, investors are understandably on edge as they await the election results. Such results would drastically change the outlook for fiscal policy and economic strategy, probably turning the tide for the AUD.