The Australian dollar looks set to tread water in Asia, before things get interesting later

Bill Pugliano/Getty Images

The Australian dollar rose modestly against the greenback overnight but fell against the crosses as broad-based US dollar weakness was offset by weakness in iron ore prices.

Here’s the scoreboard as at 8am AEST.

AUD/USD 0.7854 , -0.0002 , -0.03%
AUD/JPY 88.2 , -0.05 , -0.06%
AUD/CNH 5.2257 , -0.0008 , -0.02%
AUD/EUR 0.6664 , 0 , 0.00%
AUD/GBP 0.5844 , 0.0001 , 0.02%
AUD/NZD 1.0856 , 0.0002 , 0.02%
AUD/CAD 0.9765 , 0.0004 , 0.04%

After briefly falling to .7800 in Asian trade on the back of another plunge in Chinese commodity futures, the AUD/USD ground higher in European and North American trade, benefiting from an unwind in recent US dollar strength.

The weakness in the USD reflected a degree of caution on the likelihood that Donald Trump would be able to deliver on proposed tax reforms, along with some quarter-end window dressing.

“In our view, USD will continue to trade on the defensive until we have more details on the proposed tax reform impact on US fiscal policy and foreign capital flows to the US,” said Elias Haddad, senior currency strategist at the Commonwealth Bank. “Also, the legislative process to get tax reform passed by Congress will most likely take some time.”

While that helped it to recover against the greenback, the Aussie weakened against all major crosses, likely reflecting weakness in commodity prices during the session, including iron ore and crude oil.

AUD/USD Hourly Chart

Turning to the session ahead, there is nothing in Asia that appears likely to generate any significant volatility in the Aussie.

Domestically, the Reserve Bank of Australia will release private sector credit figures at 11.30am AEST, although its likely to be overlooked by investors.

“[The] AUD will largely ignore the release of Australia‚Äôs August private sector credit report,” Haddad says. “Instead, AUD/USD will continue to be guided by the performance of iron ore prices and the USD.”

Outside of Australia, Japan will also release a flurry of data, including unemployment, inflation, household spending and industrial output for August.

With US economic data the main driver of movements in the yen at present, they too are likely to pass without any significant impact on markets.

With a public holiday in Victoria and Chinese markets winding down before a week long holiday starting this weekend, it could well be a boring Asian session for traders.

For those not thinking about holidays, the data calendar does pick up in European and US trade with inflation readings from the US and eurozone set to dominate.

Inflation in the eurozone is expected to increase by 1.6% in the year to August, up from 1.5% reported in July. It will be released at 7pm AEST.

In the US, core PCE inflation — the Federal Reserve’s preferred measure on price pressures — is forecast to lift 0.2% in August following a 0.1% increase in July. It’s scheduled for release at 10.30pm AEST.

Outside of those releases, markets will also receive German retail sales and unemployment, French and Italian CPI, the Nationwide House Price Index, consumer credit and the final reading of Q2 GDP from the UK along with consumption and personal income data from the US.

There’s plenty of risk events scattered in those releases, hinting that volatility may pick up in the second half of the session.

On Saturday, China will also release manufacturing and non-manufacturing PMI data for September.

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