The Australian dollar rebound just hit turbulence

Matt King/ Getty Images

The Australian dollar has opened the new trading week just above the 79 cent level, pulling back from highs struck midway through Friday’s trading session.

Here’s the scoreboard as at 7.50am AEDT.

AUD/USD 0.7902 , -0.0008 , -0.10%
AUD/JPY 84.05 , -0.05 , -0.06%
AUD/CNH 4.9759 , -0.0063 , -0.13%
AUD/EUR 0.6372 , -0.0004 , -0.06%
AUD/GBP 0.5639 , -0.0002 , -0.04%
AUD/NZD 1.0708 , 0.0009 , 0.08%
AUD/CAD 0.9932 , -0.0002 , -0.02%

The 5-minute AUD/USD chart shows the Topsy-Turvy time the Aussie endured on Friday, soaring back towards the 80 cent level in Europe before giving back all of those gains and more in the final throngs of trade.

Much of it was explained by gyrations in the US dollar seen during the session.

AUD/USD 5-Minute Chart

“The US dollar staged a minor comeback for no obvious reason other than position squaring into the US holiday weekend, with EUR leading the move and JPY lagging but still managing to fully recoup the APAC session swoon to end marginally weaker on the day,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

US markets will be closed today for the President’s Day holiday.

Along with position squaring from traders before the long weekend, Elias Haddad, Senior Currency Strategist at the Commonwealth Bank, said the US dollar rebound may have been assisted by firm US economic data and renewed concerns about a potential trade war between US and China.

“[The] USD recovered during Friday’s overnight session supported in part by improving US consumer confidence in February and the prospects of more protectionist US trade policies,” he said.

“The US Commerce Department proposed the US impose a 24% global tariff on steel shipments to the US and a 7.7% duty on US aluminium imports.

“A Chinese official at the commerce ministry warned that ‘if the final decision from the US hurts China’s interest, we will certainly take necessary measures to protect our legitimate rights.'”

Haddad says “more inward looking US trade policies may prompt protectionist responses from other economies”, potentially creating a “mild drag to global economic activity” which could add “support the USD”.

With both US and Chinese markets off on holidays, and little in the way of major economic data, it looks like it may be a slow start to the week for markets in Asia.

Aside from Japanese trade and Eurozone current account data there’s nothing of real note on the calendar, likely ensuring that sentiment and technicals will remain in the driving seat today.

Looking further ahead, Haddad says movement in the Aussie dollar later in the week are likely to influenced by the release of Australia’s December quarter wage price index (WPI) on Wednesday.

“AUD will be guided this [release],” he says.

“The annual growth rate in the private sector wage price index excluding bonuses is projected to stay at 2%, or 0.5% for the quarter, consistent with a benign inflation outlook.

“Tighter Australian labour market conditions points to upside risk to wage growth. Faster wage growth of above 2% per annum can lead to an upward revision to Australian interest rate expectation in favour of AUD.”

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