The Australian dollar weakened overnight but no one's really sure why

Daniel Berehulak / Getty Images

The Australian dollar gave back much of Friday’s gains over the course of Monday’s session, succumbing to profit-taking on the back of modest US dollar strength.

Here’s the scoreboard as at 7.50am AEDT.

AUD/USD 0.7849 , -0.0039 , -0.49%
AUD/JPY 88.07 , 0.00 , 0.00%
AUD/CNH 5.1678 , -0.0041 , -0.08%
AUD/EUR 0.6654 , -0.0004 , -0.06%
AUD/GBP 0.5923 , 0.0009 , 0.15%
AUD/NZD 1.0944 , -0.0039 , -0.36%
AUD/CAD 0.9819 , -0.0013 , -0.13%

Having opened the day buying .7874, the AUD/USD drifted in a thin 30 pip range over the course of Asian and European trade before eventually sliding lower during the US session.

Rodrigo Catril, FX strategist at the National Australia Bank, described the Aussie’s performance as “somewhat puzzling” given strength in commodity markets and further gains in stocks.

“The AUD is the worst G10 performing currency over the past 24hrs,” Catril wrote in his morning note. “AUD underperformance has occurred despite the fact that risk sentiment has remained buoyant and commodities had a decent night.”

Copper hit a fresh multi-year high while crude prices also spiked, reflecting strength across base, bulk and energy markets.

Catril says that the Aussie slide could have been caused by a narrowing in the spread between Australian and US bond yields on Monday.

“The 10-year spread widened on Friday immediately after the soft US CPI print, but since then it has been on a steady narrowing trend, currently trading around 50.5 basis points (bps), about 3 bps tighter relative to Friday‚Äôs peak.”

That may have been assisted by news that the Empire (New York) State manufacturing index hit a three-year high in October.

A steep reversal in Chinese iron ore futures may also explain some of the Aussie’s weakness.

AUD/USD 30-Minute Chart

Turning to the day ahead, there’s a few risk events for traders to navigate.

Domestically, the Reserve Bank of Australia will release the minutes of its October monetary policy meeting at 11.30am AEDT, with all interest likely to fall on the discussion surrounding the labour and housing markets, along with the outlook for household consumption.

Luci Ellis, Assistant RBA Governor, will also participate in a panel discussion at the 9th Annual Australian and New Zealand Investment Conference, also at 11.30am AEDT.

In New Zealand, Q3 consumer price inflation (CPI) will also be released at 8.45am AEDT. While this has the potential to move the Aussie, as has been documented in the past, the Kiwi print is not the best of guides in terms of what will happen in Australia.

An increase of 0.4% is expected for the quarter, leaving the increase over the year at 1.8%. The RBNZ’s inflation target is 1 to 3%.

There’s very little in the way of major data released across the rest of the Asia region, likely ensuring that movements in the Japanese yen and Chinese yuan will prove influential on the Aussie.

Later in the session, data highlights include UK and Eurozone CPI, investor sentiment from Germany along with trade prices, industrial production, NAHD home builder confidence and weekly API crude oil inventory data from the US.

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