The Australian dollar is rallying -- but not everyone thinks it will last

Massimo Bettiol/Getty Images
  • The AUD/USD is back above the .7400 level to start the new trading week, adding to the gains achieved on Friday.
  • A rebound in Chinese financial markets and mixed US jobs report for June were the main catalysts behind the Aussie’s rally on Friday.
  • The data and events calendar is quiet on Monday, hinting that sentiment and technicals will dictate the Aussie’s direction.

The Australian dollar has begun the new trading week above the 74 cent level, continuing to add to the strong gains seen on Friday.

Here’s the scoreboard as at 7.35am AEST.

AUD/USD 0.7431 , 0.0003 , 0.04%
AUD/JPY 82.08 , 0.03 , 0.04%
AUD/CNH 4.9482 , 0.0008 , 0.02%
AUD/EUR 0.6323 , -0.0002 , -0.03%
AUD/GBP 0.5579 , -0.0002 , -0.04%
AUD/NZD 1.0862 , -0.001 , -0.09%
AUD/CAD 0.973 , 0.0005 , 0.05%

As had been the case earlier in the week, the AUD/USD’s movements in the first half of Friday’s session were dictated by those in the offshore traded yuan, or CNH.

However, after climbing in Asia despite the implementation of fresh tariffs on the others imports from the United States and China, the relationship between the two currencies weakened in the second half of the session following the release of the US non-farm payrolls report for June.

While the headline payrolls figure beat, both the unemployment rate and average hourly earnings undershot market expectations, resulting in the US dollar weakening against most of the major crosses as US treasury yields declined.

“A slightly bigger than expected rise in US non-farm payrolls on Friday of 213,000, as well as upward revisions to the prior two months by 37,000, was no match for slightly softer-than-expected average hourly earnings growth of 0.2% for the month and a 0.2% rise in the unemployment rate to 4%, albeit the latter was driven by a 0.2% rise in the participation rate,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

“As a result, stocks rallied, bond yields fell and the US dollar was universally weaker with the US dollar index (DXY) falling by 0.5% and the broader BBDXY by 0.4%.”

More broadly, Attrill said stability in the Chinese Yuan and emerging markets currencies was the main theme of the session, helping the AUD/USD push back above the .7400 level despite broad-based weakness in base metals prices.

Investing.comAUD/USD Hourly Chart

Turning to the session ahead, movements in the Aussie look set to be determined by sentiment and technicals given a quiet economic calendar.

There’s few releases of note in Asia with German trade and current account figures, Eurozone investor sentiment and US consumer credit the only real highlights in the second half of the session.

Given the influence they had last week, the performance of Chinese markets, particularly the Chinese yuan, could well dictate how the Aussie dollar performs today.

“AUD/USD is set to feel the impact of a firmer USD,” says Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.

“With Asian currencies coming under more downward pressure, we anticipate AUD/USD will similarly depreciate this week.”

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